Management’s review Other reports Sustainability report 2022 ESG performance report 2022 Remuneration report 2022 In our sustainability report, you can read more about how Ørsted as a business contributes to addressing some of the challenges faced by society. In our ESG performance report, you can read more about Ørsted’s environmental, social, and governance indicators. In our remuneration report, you will get a transparent and comprehensive overview of the remuneration of our Executive Board and our Board of Directors. Green bond impact report 2022 In our green bond impact report, you will get an insight into our green bond portfolio. Outstanding green bonds and green hybrid bonds currently account for more than 80 % of Ørsted’s total portfolio of bonds and hybrid capital. Statutory corporate governance report 2022 In our statutory corporate governance report, you can read more about how we have incorporated and follow the recommendations prepared by the Danish Committee on Corporate Governance. 2 Full ESG data overview Our full ESG data overview (including EU tax- onomy) and our accounting policies are avail- able in our annual ESG performance report. Our work for increased gender diversity at leadership level is reported in accordance with section 99 b of the Danish Financial Statements Act in our ESG performance report 2022 (orsted.com/ESGperformance2022). By publishing our sustainability report (orsted.com/sustainability2022), we comply with section 99 a of the Danish Financial Statements Act. In the same report, reporting on diversity in accordance with section 107 d of the Danish Financial Statements Act can be seen. For information concerning section 99 d, see page 59 in the annual report. Annual reporting 2022 Get an overview of our financial, sustainability, and ESG performance by downloading our reports and investor presentations. See our reports here: Ørsted annual report 2022 Management’s review Contents Management’s review Financial and ESG statements Overview Results Performance highlights . . . . . . . . . . . . . . . . . . . . . . . . . 5 Letter to our stakeholders . . . . . . . . . . . . . . . . . . . . . . . 7 Our global footprint . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Financial outlook Follow-up on 2022 guidance . . . . . . . . . . . . . . . . . . . . . 43 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Five-year summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Quarterly summary, 2021-2022 . . . . . . . . . . . . . . . . . . . 54 Financial outlook 2023 . . . . . . . . . . . . . . . . . . . . . . . . 13 Financial estimates and policies . . . . . . . . . . . . . . . . . . 15 Governance Strategy and business Becoming the world’s leading green energy major . . . . . . 17 Strategic targets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Our journey towards a thriving and sustainable future . . . 21 The markets where we operate . . . . . . . . . . . . . . . . . . . 27 Business model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Executing our strategy . . . . . . . . . . . . . . . . . . . . . . . . . 31 Risks and risk management . . . . . . . . . . . . . . . . . . . . . 38 Message from the Chair . . . . . . . . . . . . . . . . . . . . . . . . 56 Corporate governance . . . . . . . . . . . . . . . . . . . . . . . . . 57 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Group Executive Team . . . . . . . . . . . . . . . . . . . . . . . . . 65 Shareholder information . . . . . . . . . . . . . . . . . . . . . . . 67 3 Consolidated financial statements Consolidated statement of income . . . . . . . . . . . . . . . . 71 Consolidated statement of comprehensive income . . . . . 72 Consolidated balance sheet . . . . . . . . . . . . . . . . . . . . . 73 Consolidated statement of shareholders’ equity . . . . . . . 74 Consolidated statement of cash flows . . . . . . . . . . . . . . 75 Notes Consolidated ESG statements (additional information) Basis of reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 ESG performance indicators . . . . . . . . . . . . . . . . . . . . 157 Accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . 160 Parent company financial statements Income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 Balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 Statement of changes in equity . . . . . . . . . . . . . . . . . . 164 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Management’s statement, auditor’s reports, and glossary Statement by the Executive Board and the Board of Directors . . . . . . . . . . . . . . . . . . . . . 173 Independent Auditor’s Reports . . . . . . . . . . . . . . . . . . 174 Independent limited assurance report on the consolidated ESG statements . . . . . . . . . . . . . . . . . . . 179 Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 Ørsted annual report 2022 Management’s review Overview Performance highlights Letter to our stakeholders 5 7 11 Our global footprint Bob is one of the 80 locally recruited O&M professionals, who will soon be based at our newly opened O&M hub at the Port of Taichung in Taiwan. The facility was built with locally manufactured, energy-saving, and sustainable materials. It features solar panels, a rainwater recycling system, and charging stations for electric vehicles. The hub will serve the three Greater Changhua offshore wind farms. 4 Ørsted annual report 2022 Management’s review Overview | Performance highlights Performance highlights Profits and returns Operating profit (EBITDA) DKKbn EBITDA was record-high at DKK 32.1 billion. EBITDA excluding new partnerships amounted to DKK 21.1 billion, which compares to our original guidance of DKK 19-21 billion and our latest guidance of DKK 21-23 billion. 24.3 16.6 Cash flow and balance sheet 32.1 Gross Investments DKKbn Our gross investments reached DKK 37.4 billion and was driven by our construction of both wind and solar assets. 27.0 39.3 37.4 32.1 2020 2021 2022 37.4 2020 2021 2022 Return on capital employed (ROCE) % Profit for the year DKKbn Interest-bearing net debt DKKbn Credit metric (FFO/adjusted net debt) % ROCE was 17 % for the year, which was above our target of an average ROCE of approx. 11-12 % for the Group in the period 2020-2027. In 2022, ROCE was positively impacted by the 50 % farm- downs of Hornsea 2 and Borkum Riffgrund 3. Profit for the year was DKK 15.0 billion, DKK 4.1 billion higher than in 2021. The increase was mainly due to the higher EBITDA. Our net debt increased to DKK 30.6 billion. The increase was mainly due to dividend payments of DKK 5.7 billion and higher lease obligations of DKK 1.6 billion, whereas we had net neutral free cash flows. The credit metric funds from operations (FFO) relative to adjusted net debt amounted to 43 % in 2022, above our target of around 25 %. 2022 2021 2020 17 % 15 % 8 % 2022 2021 2020 10.9 15.0 15.5 2022 2021 2020 30.6 24.3 12.3 2022 2021 2020 43 26 65 Excl. new partnerships New partnerships RBC divestment Follow up on outlook announced for 2022 21.1 EBITDA, DKKbn Guidance (2 Feb.) 19-21, (11 Aug.) 20-22, (3 Nov.) 21-23 Realised 37.4 Investments, DKKbn Guidance (3 Feb.) 38-42, (11 Aug.) 43-47, (3. Nov.) 38-42 Realised With EBITDA excluding new partnerships of DKK 21.1 billion, we ended above our original expectations and within our latest guidance of DKK 21-23 billion. Read more on page 43 where we follow up on our 2022 guidance in detail. 5 Ørsted annual report 2022 Management’s review Overview | Performance highlights Environment → Installed renewable capacity increased by 17 % to 15.1 GW in 2021 due to the commissioning of the offshore wind farm Hornsea 2, the onshore wind farms Haystack, Helena Wind, and Ford Ridge as well as the acquisition of Ostwind in Europe. The green share of our heat and power generation amounted to 91 %. The increase compared to last year was driven by more wind and solar assets in operation and higher wind speeds, partly offset by higher coal- based heat and power generation. Installed renewable capacity GW Green share of generation % 15.1 90 90 91 13.0 11.3 2020 2021 2022 2020 2021 2022 Avoided emissions Million tonnes, CO2e Avoided emissions increased by 21 % due to increased wind- and solar-based generation, partly offset by a decrease in biomass-based heat and power generation. Greenhouse gas emissions intensity (scope 1 and 2) CO2e/kWh The greenhouse gas intensity from our heat and power generation and other operating activities (scope 1 and 2) was 60 g CO2e/kWh. The increase was driven by the increased use of coal, partly offset by higher wind and solar generation. Greenhouse gas emissions, scope 3 Million tonnes, CO2e Our scope 3 greenhouse gas emissions were reduced by 40 %, mainly due to a 48 % decrease in gas sales and a 10 % reduction in emissions from commissioning renewable assets. 18.2 15.1 13.1 2022 2021 2020 60 58 58 2022 2021 2020 11.0 18.2 25.3 2022 2021 2020 6 Social Safety Total recordable injury rate (TRIR) We continue to have a strong focus on the safety and well-being of our employees. 3.1 3.0 in 2021 / 3.6 in 2020 Employee satisfaction Index 0-100 Our 2022 employee satisfaction survey, People Matter, showed a high satisfaction and motivation score of 76. 78 77 76 2020 2021 2022 Governance Nationality and gender diversity of the Board of Directors and the Group Executive Team.¹ We continue to have strong focus on increasing diversity at all leadership levels. 9 women 14 men 13 Danish 10 non-Danish Gender Nationality 1 The illustration includes both the eight members elected by the general meeting and the four members elected by the employees. Ørsted annual report 2022 Management’s review Overview | Letter to our stakeholders Accelerated renewable energy build-out is more needed than ever Letter to our stakeholders Our ambition to reach approx. 50 GW of installed renewable capacity by 2030 is more important than ever. The world is facing a climate crisis, and it is indisputable that a transition to a sustainable energy system is needed. In the past decade, global investment in energy supply has slowed down by 2.4 % per year across all technologies, indicating a risk of an emerging energy shortage. Especially in Europe, this risk has been worsened by the war in Ukraine. This development has made it evident that renewable energy is the best solution to secure an independent, locally rooted energy supply, and that investments must be accelerated. We are ready to be part of this much-needed accelerated renewable energy build-out. Our longstanding industry experience in constructing large- scale offshore wind farms and our strong supplier relations give us a competitive edge in the industry, which enables us to maximise joint strengths across our portfolio. We have a well-functioning operating model, which allows us to harvest synergies across markets, regions, and technologies. We want to play a key role in the future energy systems with a focus on three areas: offshore wind, onshore renewables, and P2X (green fuels and e-fuels), and we aim to be a key player in developing multi-technology solutions. Based on our capabilities and experiences and our unique renewable platform, we are ideally positioned to integrate renewable technologies to help shape the future energy market and to cater for the growing customer demand. However, for the acceleration to be successful, it is crucial that we build green energy right. Our actions should contribute to fully decarbonising the world’s energy systems, to revive and rewild our oceans and lands, to respect human rights in everything we do, and to promote just societies and build thriving local communities, based on stable high-quality jobs and local supply chains. Significant strategic and operational progress The year 2022 underlined our continued leadership in off- shore wind. Despite a challenging year for the industry with continued supply chain bottlenecks and increasing costs of raw materials and components, we are in a robust position for weathering the current volatile market conditions. In 2022, we achieved significant strategic results across our business, and it keeps us ahead of our annual build-out targets towards 2030. We were awarded 2.9 GW of offshore wind capacity and added 1.6 GW of onshore renewables through organic growth and acquisitions. Additionally, we advanced seven projects (1.4 GW) to FID and four projects (2.0 GW) to COD. This increased our firm capacity to 30.7 GW by the end of 2022 and keeps us well on track to deliver on our 2030 ambi- tion of ~50 GW. Furthermore, we achieved strong operational performance with our assets remaining fully operational and having strong availability rates. Our CHP plants supported the much-needed security of supply in Denmark. Our green share of heat and power generation amounted to 91 %. 7 Thomas Thune Andersen and Mads Nipper in Grimsby, the UK. In the UK, we were awarded a contract for difference (CfD) for building Hornsea 3, the world’s single biggest offshore wind farm, and we commissioned Hornsea 2, the world’s largest operating wind farm. In the US, we continued the development of our portfolio of offshore wind projects off the East Coast. We took FID on South Fork, which is well on track to be commissioned as our first US project late 2023. For Ocean Wind 1, BOEM released its draft environmental impact statement (DEIS), and we continued to Ørsted annual report 2022 Management’s review Overview | Letter to our stakeholders mature the project boundary conditions and secure key supply chain contracts. In January 2023, we signed an agreement to purchase PSEG’s 25 % equity stake in the project. However, due to supply chain bottlenecks, cost inflation, and higher costs of capital, the value of our US projects with non-inflation-adjusted contracts are under pressure. For our Sunrise Wind project in New York, this led to an impairment. We remain committed to our portfolio, and we are confident we can create value. The early construction work of two of our German offshore wind farms, Borkum Riffgrund 3 and Gode Wind 3, are both progressing according to plan. In Taiwan, despite challenges, we continued the progress in all areas of the construction of Greater Changhua 1 & 2a and expect to commission the wind farm in H2 2023. We decided not to participate in the third Taiwanese auction as it did not meet our financial threshold. By partnering with the offshore project developer Simply Blue Group and the minority JV partner Subsea 7 on the 100 MW floating project Salamander in Scotland, we are taking tangible steps into floating offshore wind. Likewise, we signed an agreement and entered into a partnership with Repsol, a global multi-energy company, to explore the joint development of floating offshore wind in the Iberian Peninsula. We also formed a new partnership with Copenhagen Infra- structure Partners to develop up to 5.2 GW of offshore wind in Denmark across four projects. The partnership aims to accelerate the green transformation, create value in the off- shore wind industry, and create a Danish business and export stronghold within renewable hydrogen. In our onshore business in the US, we took FID on three pro- jects, the wind farm Sunflower in Kansas, the solar PV project Mockingbird in Texas, and the combined solar PV and storage project Eleven Mile in Arizona. The wind part of Helena Energy Center in Texas and the wind farm Haystack in Nebraska were successfully commissioned. 8 Additionally, we are constructing the solar farm Old 300, which is 78 % commissioned, and the solar part of Helena Energy Center. We expect full commercial operation before the end of 2023 for both projects. Furthermore, we acquired the onshore wind farm Ford Ridge in Illinois. We have taken yet another step within onshore renewables in Europe by completing the acquisition of Ostwind. This acquisition expands our portfolio into Germany and France with a development project pipeline of more than 1.5 GW. In Spain, we marked our entry into the onshore market with four partnerships to pursue early-stage solar and onshore wind projects. To support our growth ambitions, we effectively recycled our capital by signing and completing two new farm-downs. The farm-down of Hornsea 2 was one of the largest renew- able energy M&A transactions ever with a valuation that underpins the attractiveness of our offshore wind assets. In our onshore business, we closed our first-ever agreement to farm down 50 % of a portfolio of four onshore projects in the US to Energy Capital Partners. Both transactions secured a NPV retention of around 100 % and crystalised value up front, while providing proceeds, which we can reinvest in value-creating growth. In our P2X business, we took FID on and acquired the remaining 55 % of FlagshipONE, a late-stage development project in Northern Sweden. The facility will have an electrolyser capa- city of 70 MW and is expected to produce 50,000 tonnes of e-methanol per year based on renewable hydrogen and biogenic carbon. This is Ørsted’s first commercial-scale final investment decision within its P2X business and represents a significant milestone in the realisation of our P2X ambitions. It is also the largest e-methanol project under construction in Europe. 30.7 GW We increased our firm capacity to 30.7 GW by the end of 2022, which keeps us well on track to deliver on our 2030 ambition of ~50 GW renewable capacity. This has enabled us to accelerate the development of a 675 MW facility on the Gulf Coast. Finally, both our ‘Green Fuels for Denmark’ project and our Haddock P2X project in the Netherlands received IPCEI funding in 2022. Financial results EBITDA including new partnership agreements totalled DKK 32.1 billion in 2022, our highest EBITDA to date, of which the gain from the 50 % farm-downs of Hornsea 2 and Borkum Riffgrund 3 amounted to DKK 11.0 billion in total. EBITDA excluding new partnership agreements amounted to DKK 21.1 billion, an increase of DKK 5.3 billion compared to 2021. We benefitted from our diverse portfolio and achieved significantly higher earnings from our onshore wind and solar PV business, our combined heat and power plants, and our gas activities than expected at the beginning of the year, while earnings in Offshore decreased. The unexpected de- crease in Offshore was primarily due to adverse impacts from hedges and delays at our Hornsea 2 and Greater Changhua 1 & 2a construction projects. During the year, we have had to recognise a DKK 1.3 billion negative impact from hedges, which does not fulfil the requirements for hedge account- ing under IFRS 9. The effect is temporary and will improve EBITDA in later periods. We also signed a landmark letter of intent with A.P. Moller - Maersk to deliver 300,000 tonnes of e-methanol to power Maersk’s newly ordered e-methanol-powered vessels. The return on capital employed (ROCE) was 17 %, and profit for the year amounted to DKK 15.0 billion. Ørsted annual report 2022 Management’s review Overview | Letter to our stakeholders EBITDA 2022, DKKbn EBITDA 2021, DKKbn Operating profit (EBITDA) increased by 32 % and amounted to DKK 32.1 billion, our highest EBITDA to date. 32.1 24.3 The Board of Directors recommends paying a dividend of DKK 13.5 per share, corresponding to DKK 5.7 billion and an increase of 8.0 %. We expect EBITDA excluding new partnership agreements to be DKK 20-23 billion in 2023, driven by a significant in- crease in earnings from our operational renewable energy assets partly offset by lower earnings from our CHP plants and gas business compared to 2022. We remain confident in our long-term financial estimates and growth ambitions. Continued sustainability leadership In 2022, we launched additional commitments, initiatives, and pilots, which are needed to deliver on our medium- and long-term targets. In addition to initiatives related to our net-zero emissions target, we have acted on our commitment to deliver a net-positive biodiversity impact from all our new energy assets from 2030 at the latest and our aspiration to drive a just transition. Our 98 % carbon reduction target for 2025 remains unchanged. However, we will not see steep emission reductions from energy generation in 2023-2024, since we have been ordered by the Danish authorities to continue operations of our coal-fired power stations until June 2024. We are proud founding members of the First Movers Coalition steel and concrete sectors. In 2022, together with only four other leading companies, we agreed to further accelerate the decarbonisation of our supply chain, by procuring at least 10 % ‘near-zero’ concrete by 2030. With this, we aim to pool our purchasing power and create early market demand for near-zero concrete. Since 1970, 70 % of the world’s wildlife have been lost, and projections show that biodiversity will continue to decline if we maintain business as usual. We have started a range of initiatives, and in 2022, we launched an international partnership with WWF. The partnership will help us achieve our ambition and develop innovative ocean projects across our markets. In an ambitious new project, we have part- nered with the Lincolnshire and Yorkshire wildlife trusts to restore biodiversity around the Humber in Northern England. Additionally, we will protect almost 1,000 acres of native prairie as part of our Mockingbird solar PV project in the US together with The Nature Conservancy. Building renewable energy comes with the opportunity to provide high-value jobs and drive a socially just trans- formation of our industry. We want to do both. We are expanding our thriving communities programme to make sure we have a robust impact management system in place, which is geared towards delivering local, social, and economic value. 9 Selected events 2022 February August Offshore wind farm South Fork, New York, FID (130 MW), COD expected in 2023 Offshore wind farm Hornsea 2 commissioned (1,320 MW) September Closing of 50 % farm-down of the offshore wind farm Hornsea 2 Completed acquisition of Ostwind, a French-German onshore renewable energy platform October Partnership entered with CIP to develop ~5.2 GW of offshore wind in Denmark Agreement closed to farm down 50 % of four onshore projects in the US to Energy Capital Partners Eleven Mile solar PV and storage project, Arizona, FID (300 MWAC, 300 MW), COD expected in 2024 December Mockingbird solar PV project, Texas, FID 471 MWAC, COD expected in 2024 E-methanol project FlagshipONE, Sweden, FID, COD expected in 2025 Haddock P2X project, the Netherlands, received IPCEI funding ‘Green Fuels for Denmark’ P2X project received IPCEI funding March Letter of Intent signed with A.P. Moller - Maersk to deliver 300,000 tonnes of e-methanol from a US asset currently under development. Onshore wind farm Haystack, Nebraska, commissioned (298 MW) April Acquisition of majority stake (80 %) in 100 MW Salamander floating offshore wind development project on the Scottish coast Partnership entered with Repsol to explore the joint development of floating offshore wind in Spain Onshore wind farm Sunflower, Kansas, FID (201 MW), COD expected in H1 2023 May Agreement signed to acquire the onshore wind farm Ford Ridge, Illinois (121 MW) June Onshore wind part of Helena Energy Center, Texas (268 MW), commissioned July CfD awarded to Hornsea 3 Offshore Wind Farm, the UK, (2,852 MW) Ørsted annual report 2022 Management’s review Overview | Letter to our stakeholders As a first in the US, together with North America’s Building Trades Unions (NABTU), we announced an agreement to construct offshore wind farms with an American workforce. In Choczewo in Poland, we have set up a community fund to support local sustainable development opportunities, and as part of Sunrise Wind in New York, we will recruit and train workers from marginalised communities for union construction careers. To support our journey, we will ensure that sustainability is embedded in the core of how we do business. This entails a corporate governance that enables the right decisions. In 2022, we took this further. Following implementation for the leadership team in 2022, we adjusted our short-term incentive (STI) scheme for all participating employees, effective from 2023. The new STI supports a stronger link to our 2030 aspirations, including global sustainability leadership, and ensures that sustainability is further inte- grated in our operating model. Our employees and our organisation are the backbone of our success In a challenging and highly volatile year, our skilled and valued employees have navigated this complexity well and managed to deliver strong strategic progress and record results for Ørsted. Our success is only possible through them, and we care deeply about all our colleagues and our joint safety. In 2022, our employee satisfaction survey showed a motivation and satisfaction score of 76 out of 100. Although this is a high score well above our external benchmark for comparable companies, we aim even higher, and we will continue to improve the well-being of our employees. Having a strong focus on safety is anchored in our organisa- tion in terms of both protecting the physical conditions of our employees and securing a psychologically safe workplace. In 2022, our total recordable injury rate (TRIR) reached 3.1, up from 3.0 in 2021, mainly due to recordable injuries for contractors’ employees. We are not satisfied with this development. Consequently, we have implemented several initiatives to improve safety, and we remain focused on our ambition of reaching a TRIR of 2.5 in 2025. As we expand our global footprint, we experience increas- ingly different local market requirements. Therefore, as of November 2022, we implemented a new organisational structure, which is rooted in local regions while leveraging the synergies of a global organisation. With this new structure, integrating our offshore and onshore renewables organisations and making P2X a stand-alone business, we are moving closer to our markets and our customers. Conse- quently, there were changes to our Group Executive Team, including new regional executives. Committed to our ambition In 2022, an energy crisis was added to the global climate and biodiversity crises. Renewable energy has proven to be significantly cheaper than any fossil fuel alternative, even with higher prices, and it has furthermore proven to be the best possible insurance policy to avoid future energy price increases like those seen last year. Therefore, action must be taken to increase the pace of the necessary investments in renewable energy. In the US, an important step has been initiated by introducing the US Inflation Reduction Act. It provides USD 385 billion in funding for renewable energy generation, renewable hydrogen production, and climate risks over the next ten years. In the EU, the European Commission is planning a Net-Zero Industry Act, which will be aligned with the 2050 climate targets and provide significant opportunities for the renewable energy sector. 10 We need to push regulatory and political barriers to focus on fast and streamlined permitting processes, which today continue to represent a major bottleneck within our industry. We are pleased to note that discussions around permitting are ongoing in our major markets. In light of supply chain bottlenecks, inflation, and increasing cost of capital, it is also essential that countries and states are willing to pay realistic long-term prices for renewable power. We will uphold the necessary financial discipline to ensure our projects are profitable. Furthermore, we need to push for increased focus on the societal value provided by renewables to secure a sustainable build-out of the industry and for future auction frameworks to include factors like efficient system integration, biodiversity, and the restoration of nature to the benefit of local communities. We believe it can be done, and we, at Ørsted, are well- positioned to continue to play a pivotal role in the accele- rated build-out needed in the coming years. Mads Nipper Group President and CEO Thomas Thune Andersen Chair of the Board of Directors Ørsted annual report 2022 Management’s review Overview | Our global footprint Our global footprint The Netherlands 0.8 GW Offshore P2X Denmark 3.0 GW Offshore CHP plants Sales of energy P2X United States of America 10.7 GW Offshore Onshore Solar, PV Storage P2X United Kingdom 9.2 GW Offshore Onshore Storage P2X Ireland 0.4 GW Onshore Solar, PV Spain Offshore Onshore Firm capacity 30.7 GW 59.3 GW renewable pipeline, including 16 GW of substantiated pipeline in Offshore and 12.6 GW of substantiated pipeline in Onshore. 11 Japan Offshore Korea Offshore Sweden 0.1 GW P2X Sales of energy Estonia Offshore Latvia Offshore Poland 2.5 GW Offshore Vietnam Offshore France 0.1 GW Onshore Solar, PV Germany 2.6 GW Offshore Onshore P2X Taiwan 1.9 GW Offshore Australia Offshore Capacity GW United States of America Offshore Onshore Solar, PV Storage 5.0 3.2 2.1 0.3 United Kingdom and Ireland Offshore Onshore Solar, PV 0.4 0.1 Continental Europe Offshore Onshore P2X CHP, power CHP, heat APAC 0.1 0.1 2.5 3.4 3 8.3 4 2 7 2.3 9.1 6.8 Offshore 1.9 3 Firm capacity In operation Under construction (FID) Awarded Substantiated capacity Substantiated pipeline Ørsted annual report 2022 Management’s review Financial outlook 13 Financial outlook 2023 15 Financial estimates and policies 12 Our onshore wind and solar PV footprint in Europe just got bigger. In 2022, we acquired the German-French developer, owner, and operator Ostwind – and with it, 152 MW onshore wind and solar PV in operation and under construction in France and Germany, with a further 1.5 GW in development. This follows our acquisition of an onshore wind platform in the UK and Ireland in 2021 and our recent entry into the Spanish onshore wind market. Ørsted annual report 2022 Management’s review Financial outlook | Financial outlook 2023 Financial outlook 2023 Group EBITDA guidance As in previous years, our EBITDA guidance does not include earnings from new partnership agreements. Operating profit (EBITDA) excluding new partnership agreements is expected to be DKK 20-23 billion in 2023. We have expanded our guidance range from previously DKK 2 billion to DKK 3 billion due to the increasing energy market volatility. As in 2022, we could see offsetting effects between the business units compared to our directional guidance. Offshore - significantly higher Earnings in Offshore (excluding new partnership agree- ments) are expected to be approx. DKK 6.5 billion higher than in 2022. The net positive impact on EBITDA in 2023 is driven by: ramp-up of generation from Greater Changhua 1 & 2a, which is expected to be commissioned in H2 2023 negative impact from overhedging and ineffective hedges in 2022 not expected to be repeated in 2023 CfD and ROC farms getting a material inflation adjustment in Q2-Q4 2023 net higher generation from Hornsea 2 and lower balancing costs but higher OPEX and lower expected trading results minor earnings from existing partnerships in 2023 an expected DKK 0.8 billion increase in costs related to project development, P2X, and general costs. – – – – – – 13 Guidance on 2023 EBITDA without new partnerships DKKbn Offshore Onshore Bio & Other ~1.5 ~6 ~1 21.1 ~1 ~1 ~3 ~3 20-23 2022 excl. new partnerships Ramp-up Greater Changhua 1 & 2a Hedge effects Sites, other Existing partnerships Other, incl. DEVEX Onshore CHP plants Gas markets 2023 excl. new partnerships Outlook 2023 DKKbn EBITDA (without new partnerships) Offshore (without new partnerships) Onshore Bioenergy & Other Gross investments 2022 realised 21.1 8.6 3.6 8.6 37.4 2023 guidance 20-23 Significantly higher In line Significantly lower 50-54 Our EBITDA guidance for the Group is the prevailing guidance, whereas the directional earnings development per business unit (and components) serves as a means to support this. Higher and lower indicate the direction of the business unit’s earnings relative to the results for 2022. Ørsted annual report 2022 Management’s review Financial outlook | Financial outlook 2023 Onshore - in line Earnings from onshore wind and solar farms in operation are expected to be in line with earnings in 2022 due to: Gross investments Gross investments for 2023 are expected to amount to DKK 50-54 billion, mainly driven by: – – – – – ramp-up of generation from the wind part of Helena Energy Center, Old 300, Sunflower, Haystack, and Ford Ridge full-year earnings from Ostwind, which was acquired in Q3 2022 total power generation expecting to increase with approx. 15 % lower expected power prices in the US and price caps in Ireland an expected DKK 0.2 billion increase in project development and general costs. Bioenergy & Other - significantly lower Earnings from both our CHP plants (including ancillary services) and ‘Gas Markets & Infrastructure’ are expected to be approx. DKK 6 billion lower than in 2022. In 2022, our CHP plants benefitted from the very high power prices and spreads, which are not expected to be repeated to the same extent in 2023. In 2022, earnings in ‘Gas Markets & Infrastructure’ saw a positive effect from optimising our north-western European gas activities, where we were able to lock in gains from the offtake flexibility in some of our sourcing contracts and at gas storages. In addition, we had a positive effect from release of a provision related to our B2B activities in the UK. In 2023, we expect earnings to be fairly limited, reflecting normal margins on these activities, lower volumes, and a negative timing impact related to our Danish gas storage activities. – – – Offshore (Greater Changhua 2b & 4, Greater Changhua 1 & 2a, Borkum Riffgrund 3 and Gode Wind 3, Ocean Wind 1, and our US North-ast cluster projects) Onshore (Eleven Mile, Mockingbird, and projects from our substantiated pipeline in both the US and Europe) timing effects between years (lower level in 2022, postponed to 2023). Uncertainties, prices, and hedges Our offshore wind farms are largely subject to regulated prices, implying a high degree of revenue certainty. This means that we know the price per generated MWh for most wind farms in Denmark and Germany, our first Dutch wind farm, and the CfD wind farms in the UK. For our British ROC wind farms, we also know the subsidy per generated MWh which we will receive in addition to the market price. The part of our generation from offshore and onshore assets which is exposed to market prices has, to a large extent, been hedged for 2023. The same applies to our currency risks. Generation from our CHP plants is partly hedged. On a Group level, we hold a hedge level of around 70 % for 2023. The most significant uncertainty to the operating profit in 2023 is the power generation, which depends on wind condi- tions, ramp-up of new wind and solar assets, asset availability, timing of possible farm-downs, and the attractiveness of spreads on our CHP plants. In addition, high gas and power price volatility could impact earnings for the year through optimisation possibilities at our gas storage and sourcing con- tracts as well as higher balancing and intermittency costs. 14 Forward-looking statements The annual report contains forward-looking statements, which include projections of our short- and long-term financial performance and targets as well as our financial policies. These statements are by nature uncertain and associated with risk. Many factors may cause the actual development to differ materially from our expectations. These factors include, but are not limited to, changes in temperature, wind conditions, wake and blockage effects, precipitation levels, the development in power, coal, carbon, gas, oil, currency, inflation rates, and interest rate markets, changes in legislation, regulations, or standards, the renegotiation of contracts, changes in the competitive environment in our markets, and reliability of supply. Read more about the risks in the chapter on ‘Risks and risk management’ and in note 6. Ørsted annual report 2022 Management’s review Financial outlook | Financial estimates and policies Financial estimates and policies Capital Markets Day 2023 On 8 June 2023, we will host a Capital Markets Day (CMD). Together with the Group Executive Team, CEO Mads Nipper will present a progress update on our long-term strategy. Financial policies and capital allocation The Board of Directors will recommend to the annual general meeting that a dividend of DKK 13.5 per share be paid for 2022, equating an increase of 8.0 % and a total of DKK 5.7 billion. Supported by the expected increase in cash flows from future offshore and onshore assets, we still intend to increase annual dividends paid by a high single-digit percentage compared to the previous years’ dividends, covering the period up to 2025. Financial estimates Target Year Fully loaded unlevered lifecycle spread to WACC at the time of bid/FID Average yearly increase in EBITDA from offshore and onshore assets in operation Average return on capital employed (ROCE) Average share of EBITDA from long-term regulated and contracted activities 150-300 bps Continuous ~12 % 2020-2027 11-12 % 2020-2027 ~90 % 2020-2027 We will continue to invest our capital according to the following principles, in order of priority: Read more about our key metrics, financial targets, and policies in the presentation from our Capital Markets Day at orsted.com/en/ capital-markets-day-2021 – – – We will maintain our strong commitment to our credit ratings (BBB+/Baa1). We will honour our dividend commitment to our shareholders. We will invest in value-creating growth opportunities. Authorisation to increase share capital At the annual general meeting in 2022, we were authorised to increase our share capital on one or more occasions until April 2027. The authorisation allows for a capital increase of up to 20 %, which can significantly expand our capacity to invest in green growth beyond the ~50 GW of installed renewable capacity towards 2030. Financial policies Rating Capital structure Dividend policy Min. Baa1/BBB+/BBB+ (Moody’s/S&P/Fitch) ~25 % (FFO/adjusted net debt) Ambition to increase the dividend paid by a high single-digit rate compared to the previous years’ dividends, covering the period through 2025 Our current rating is in accordance with the policy. Financial estimates At our Capital Markets Day in June 2021, we presented four key financial estimates to support our ambitious self-funded build-out of approx. 50 GW of renewable capacity by 2030. The financial estimates cover (see details in the table to the right): – – – – spread to WACC on investments EBITDA CAGR for operating offshore, onshore, and P2X assets ROCE share of EBITDA from regulated and contracted activities. As a consequence of supply chain disruptions in the wake of the COVID-19 pandemic, cost inflation, and prolonged permitting processes, especially in the US, the gross invest- ments from 2020 to 2027 to enable our 50 GW build-out are currently trending higher than the approx. DKK 350 billion we had planned for. However, if the inflation and energy price levels remain at elevated levels, these factors will positively impact our EBITDA CAGR and ROCE in the period and lead to an increase in the relative share of EBITDA that is merchant. Notwithstanding the higher trending CAPEX, we remain committed to our CMD plan. 15 Ørsted annual report 2022 Management’s review Strategy and business 17 Becoming the world’s leading green energy major 19 Strategic targets 21 Our journey towards a thriving and sustainable future 27 The markets where we operate 30 Business model 31 Executing our strategy 38 Risks and risk management 16 Planes taking off from Copenhagen Airport could be fuelled by green jet fuel as soon as 2025. That is thanks to the decision to accelerate our flagship P2X partnership, ‘Green Fuels for Denmark’, of which Ørsted is a founding member. The project aims to establish large-scale production of sustainable fuels for the transport sector, using electrolysis powered by Ørsted’s offshore wind assets along with carbon captured from our biomass operations. Ørsted annual report 2022 Management’s review Strategy and business | Becoming the world’s leading green energy major Becoming the world’s leading green energy major Vision Let’s create a world that runs entirely on green energy We are working towards our vision of a world that runs entirely on green energy, and we see ourselves as playing a leading role in achieving this vision. Therefore, we have set a bold strategic aspiration, supported by our strong multi- technology growth platform. Strategic aspiration In 2021, we set our strategic aspiration to become the world’s leading green energy major by 2030. Our strategic aspiration is not just about gigawatt capacity. Rather, it means reaching leading positions across five pillars. The first pillar is our aim to be one of the world’s largest green electricity producers. This will require us to significantly increase our installed renewable energy capacity. Our ambition is to reach approx. 50 GW by 2030, which is more than three times our current installed capacity of 15.1 GW (across offshore wind, onshore wind, solar PV, P2X, energy storage, and combined heat and power plants). As part of this ambition, we want to maintain our global leadership in offshore wind, and we want to be a significant player global- ly within onshore renewables (which includes onshore wind, solar PV, and energy storage). Furthermore, our ambition encompasses a leading position in the global P2X market; renewable hydrogen and green fuels are central to resolving the most challenging elements of the energy transition, de- carbonising hard-to-electrify sectors. Our renewable energy development expertise, customer relationships, and proven experience in managing complex projects will be a significant advantage in this rapidly evolving market. The second pillar relates to capital deployment. Our ambition is to be one of the world’s largest and most value- creating deployers of capital into the green transformation. While offshore wind remains our largest investment area, onshore renewables and P2X will gradually take up a larger share. The third pillar is our ambition to be the world’s leading talent platform in renewable energy. We want to bring together a diverse combination of perspectives and competences to help us deliver on our vision. We believe that talent is diverse by nature, and it is essential to foster an inclusive culture to reap the benefits of a diverse talent pool. The fourth pillar covers our ambition to be a globally recognised sustainability leader. Sustainability is at the core of our business. Both because renewable energy is crucial for tackling climate change and protecting our environment, and because we insist on a renewable build-out that is done right. We want to leverage the full potential of renewable energy to create lasting positive impact that contributes to reviving nature, promoting just societies, and creating resilient jobs. We want to do so because it is the right thing to do, but also because it 17 Growth platform Offshore wind Onshore wind Solar PV Energy storage Renewable P2X 2030 aspiration Become the world’s leading green energy major One of the world’s largest green electricity producers Global no. 1 in offshore wind Significant player in onshore renewables A global leader in P2X One of the world’s largest and most value-creating deployers of capital into the green transformation The world’s leading talent platform in renewable energy A globally recognised sustainability leader A core contributor and catalyst for change towards a world running entirely on green energy Ørsted annual report 2022 Management’s review Strategy and business | Becoming the world’s leading green energy major Our growth platform Europe Americas APAC Global leader Strong growth platform Identify opportunities New growth platform Identify opportunities e r o h s f f O d n w i e r o h s n O s e l b a w e n e r r e h t O ) X 2 P . l c n i ( Gross installed capacity GW 2030 ambition 30 17.5 ~50 > ×3 15.1 2.5 8.9 4.2 2.0 Offshore Onshore Other (incl. P2X) 2022 Offshore Onshore Other (incl. P2X) 18 is the right direction for Ørsted to take to create lasting value for our stakeholders and business. To build a truly resilient business and supply chain, we need to integrate sustainable and reliable solutions into everything we do. And we need to do it now. Europe and the Americas. We remain a global leader in offshore wind across Europe, the Americas, and APAC. We are continuously identifying new opportunities with both short- and long-term potential across our growth platform. Finally, we have set an ambition to be a core contributor and catalyst for change towards reaching our vision of a world that runs entirely on green energy. We want to set new and ambitious standards for what it means to be a green energy major, and we want to lead by example in the energy industry and beyond. As part of this, we will continue to engage with stakeholders and decision-makers to build support for and promote action towards our vision. Ørsted is already working across the industry and playing a vital role in finding common ground for decarbonisation, for example by linking suppliers and offtakers. To help us track our progress, our strategic aspiration is supported by eight strategic targets, as described under ‘Strategic targets’ on the next page. For each target, it is also illustrated how the target supports our pillars. Our work towards our strategic aspiration spans our entire business, and we continue to drive forward our efforts alongside the progress on our strategic targets. An expanded and diversified growth platform To reach our 2030 strategic aspiration, we are expanding and globalising our growth platform. Over the last year, we have identified new opportunities, and we now have a strong growth platform for onshore and P2X in both In offshore wind, we have expanded our market presence since 2021. We commissioned the world’s largest offshore wind farm, Hornsea 2 in the UK, and we are acting to expand our market footprint in growth markets, such as the Nordics, the Baltics, Spain, Korea, Japan, Vietnam, and Australia. As part of our expansion, we want to play a sig- nificant role in enabling the commercialisation of floating offshore wind, which we see as an important technology for the build-out of renewables in deep water geogra- phies. In order to reach our 2030 target of 30 GW installed offshore capacity, our annual build-out target is 2 GW per year towards 2025 and 3 GW per year towards 2030. In onshore renewables, we have taken significant steps over the last year. In the US, we took FID on three new projects. With our acquisition of Ostwind (with an attrac- tive pipeline covering Germany and France) as well as multiple new partnerships in Spain, we have built a strong growth platform in Europe. We are continuing to identify opportunities to further scale our onshore presence and build our onshore renewables capacity. In order to reach our 2030 target of 17.5 GW installed onshore capacity, our annual onshore build-out target is 1.5 GW per year towards 2030. Our P2X business is the most recent addition to our growth platform. We see hydrogen and e-fuels as a key component of the green transition and a major growth area for our business. We are continuously developing and maturing our +3 GW global pipeline of renewable hydrogen and e-fuels projects, and in 2022, we took FID on FlagshipONE and expanded into North America. Ørsted annual report 2022 Management’s review Strategy and business | Strategic targets Strategic targets Target 2030 aspiration One of the world’s largest green electricity producers Value-creating deployer of capital Leading talent platform A globally recognised sustainability leader A catalyst for change 19 ~50 Other (incl. bio- mass and P2X) 90 % 90 % 91 % 99 % 11.3 13.0 15.1 17.5 Onshore renewables 30 Offshore wind 17 % 2020 2021 2022 2030 2006 2020 2021 2022 2025 1. Installed green capacity GW By 2030, our ambition is to have a gross installed renewable capacity of approx. 50 GW. By the end of 2022, we had reached 15.1 GW of global renewable capacity installed, 4.3 GW under construction, and 11.2 GW awarded. 2. Green share of generation % We intend to do everything within our control to meet our target of having 99 % green share of generation by 2025. However, our intermediate target in 2023 of a 95 % green share cannot be met following orders from the Danish authorities to extend operation of three of our coal- and oil-fired power stations in order to secure the electricity supply in Denmark. CAGR +12 % CAGR -7 % 35-40 bn 16.9 bn 15.0 bn 14.6 bn 16.8 % 14.8 % 11–12 % 8.3 % 2020 2021 2022 2027 2020 2021 2022 2020–2027 3. EBITDA growth from operating offshore and onshore assets % Our target is to increase EBITDA from our offshore and onshore assets in operation by an annual average of 12 % between 2020 and 2027. Between 2020 and 2022, we reached an annual average growth of -7 %. The decline in 2022 is temporary. 4. ROCE % Our target is an average annual return on capital employed (ROCE) of 11-12 % from 2020 to 2027. In 2022, our ROCE of 16.8 % was positively impacted by the 50 % farm-downs of Hornsea 2 and Borkum Riffgrund 3. Ørsted annual report 2022 Management’s review Strategy and business | Strategic targets 2040 net-zero full value chain decarbonisation target Our science-based net-zero target, which was approved by the Science Based Targets initiative (SBTi) in October 2021, consists of two overall GHG reduction targets (5 and 6) and a limit on the use of certified carbon-removal projects for neutralising residual emissions. 78 78 73 77 79 74 76 80 74 462 -98 % scope 1-2 322 -99 % scope 1-3 147 2006 2018 2022 <10 <2.9 2040 2025 Science-based targets -90 % gas products -50 % all scope 3 29.2 25.3 18.2 14.6 11.0 2020 2021 2022 Adjusted base year 2018 <2.4 2032 2040 Science-based targets 5. Greenhouse gas emissions intensity g CO2e/kWh 6. Greenhouse gas emissions (scope 3) million tonnes CO2e Scope 1-2 Scope 3 Natural gas sales Total scope 3 Other scope 3 emissions Our target is to reduce our scope 1-3 GHG emissions intensity (excl. natural gas sales) by 99 % compared to 2018, implying a reduction of the emissions intensity to 2.9 g CO2e/kWh by 2040. For scope 1-2, we have an additional target to reduce emissions to less than 10 g CO2e/kWh by 2025, which will be 98 % lower than in 2006, and to less than 1 g CO2e/kWh by the end of 2040. We are committed to using certified carbon-removal projects as a means of neutralising the residual emissions. We want to reach a 50 % reduction in scope 3 emissions from 2018 to 2032. In addition, we will reduce our scope 3 emissions from wholesale buying and selling of natural gas by 90 % by 2040 (also compared to 2018). In 2022, we reduced scope 3 emissions beyond our 50 % reduction target for 2032. This was due to generally lower demand for gas following Russia’s invasion of Ukraine and ceased deliveries from our gas sourcing contract with Gazprom Export. We expect our scope 3 emissions to increase again in 2024 once the Tyra gas field is reopened, and DUC resumes delivery to us under our long-term gas sourcing contract. 20 2020 2021 2022 7. Employee satisfaction index 0-100 Ørsted Ennova benchmark top 10 % Ennova benchmark Our target on employee satisfaction is to be in the top 10 % in external benchmarks. In 2022, the overall ‘motivation and satisfaction’ score among our employees dropped slightly to 76 out of 100. 3.6 3.0 3.1 2.5 2020 2021 2022 2025 8. Safety TRIR Our target is to reduce the total recordable injury rate (TRIR) to 2.5 in 2025. In 2022, our TRIR was 3.1. We continue to strive to become a safer place to work. Ørsted annual report 2022 Management’s review Strategy and business | Our journey towards a thriving and sustainable future Our journey towards a thriving and sustainable future Green energy is the most impactful solution for fighting global heating, and in our race against time, we need to build it now. Yet, we must also build green energy right to ensure we deliver a low-emission energy system that contributes to a just and thriving planet. At Ørsted, we aspire to run a business that gives more to nature and society than it takes, and we will continue to partner with companies, customers, NGOs, and others who share our aspiration to create lasting positive impact. Build green energy right, now A massive acceleration of the renewable energy build-out is the single biggest contribution that countries can make towards reducing greenhouse gas emissions and ultimately tackle the dramatic and damaging impacts of global heating. Yet, it is increasingly apparent that a simplistic approach focusing purely on quick wins and gigawatt numbers will unreasonably stress nature, local communities, working conditions, and supply chains. This is because the build-out requires access to land and sea, which relies heavily on coexistence with other users, nature, and local communities. It requires materials for construction – some of which are scarce or in high demand – and people with the right skills, necessitating a larger workforce and reskilling and upskilling to meet demand. In other words, focusing only on getting the cheapest possible clean power increases the risk of negative impacts on nature and society. Ultimately, the success of the green transition heavily relies on how we go about it. The world needs a speedy, scalable, and progressive sustainable build-out. One that fully acknow- ledges and addresses the impacts that climate change and the build-out itself have on nature and societies to create a truly sustainable world that runs entirely on green energy. We need to build green energy right, now. Giving up business as usual The acceleration of renewable energy has already made huge strides. Solar and wind power are already the most af- fordable options for generating electricity in two thirds of the world, and renewables are set to replace coal as the world’s leading source of power generation by 2027. But in order to stay below the 1.5°C threshold and avoid catastrophic and irreversible damage, it is time to give up business as usual. Time to give back more than we take At Ørsted, we aspire to run a business that gives more to nature and society than it takes. This requires us to integrate solutions to the root causes of some of our biggest societal challenges into our green energy projects, ensuring that the green transformation creates a lasting positive impact on our environment, biodiversity, and social structures. Our end goal is to build practices that regenerate nature and society. Our actions should contribute to fully decarbonising the world’s energy systems – including the more difficult 21 Cod are top marine predators, making them vital for maintaining the marine ecosystem’s delicate balance. We have embarked on a number of projects to help protect and restore cod stocks in the North Sea and, in turn, improve ocean biodiversity. Ørsted annual report 2022 Management’s review Strategy and business | Our journey towards a thriving and sustainable future sectors to decarbonise, like steel, concrete, and shipping – while reviving and rewilding our oceans and lands. They should identify, prevent, mitigate, and remedy any poten- tial adverse human rights impacts in our work, promote just societies, and build thriving local communities based on high-quality jobs and local economic benefits. “ We work consistently to integrate sustainability across all relevant parts of our operating model Our actions to deliver In the past years, we have focused many of our efforts on developing and defining the much-needed medium- and long-term targets across our various sustainability priorities. In 2022, we launched additional commitments, initiatives, and pilots that are needed to move forward and solve key challenges. To continue to deliver on our strategic aspirations, we have also strengthened our efforts to embed sustainability throughout how we do business. In practice, this means that we work consistently to integrate sustainability across all relevant parts of our operating model to ensure we unleash the potential from having everyone in Ørsted, our decisions, and our business developments, pulling in the same direction towards our aspiration. But also to ensure we have a strong organisation, fit for the future and able to navigate in the constantly evolving regulatory landscape. We do not have all the answers, but we are committed to finding them. And we know that to lift this agenda, bold decisions and unprecedented collaborative action are required at all levels of society – within and between industries, businesses, and countries. On the following pages, we unfold this work across our four interlinked strategic priority areas: climate, nature, people, and governance. To the right, our full portfolio of sustainability programmes is presented, spread across the four priority areas. Our aspiration enables us to work on renewable energy projects that contribute positively to wide-ranging and common sustainability goals with the aim of realising shared objectives for our customers, partners, investors, and our business. We will therefore continue to partner with key stakeholders, including local communities and NGOs who share this agenda, to build and launch commitments, pilots, and initiatives, scale learnings, and successfully deliver long-lasting positive impact. → Every year, we identify the sustainability themes that are material to our stakeholders and the success of our business. We compare the material themes with our capability to address impacts and expectations, we develop actions to close gaps, and we update our portfolio of sustainability programmes. Learn more about our approach, and how we work with each of our sustaina- bility programmes in our sustainability report for 2022 (orsted.com/ sustainability2022). 22 Our sustainability programmes Environment Science-aligned climate action 1. Decarbonisation of supply chain and natural gas wholesales Decarbonisation of energy generation and operations 2. 3. Reliable and secure energy infrastructure Environment Green energy that revives nature Energy projects with net-positive biodiversity impact 4. 5. Circular resource use 6. Healthy water systems 7. Sustainable use of biomass Social A green transformation that works for people 8. Thriving communities 9. 10 11. 12. 13. Safe and better ways of working Skills and talent for the green transformation Human rights management and integration Responsible sourcing of minerals and metals Diverse and inclusive renewable energy sector Governance Governance that enables the right decisions Embedding sustainability in our operating model 14. Mobilisation of sustainable finance 15. 16. Responsible business partners 17. Responsible tax practices 18. Responsible business conduct Ørsted annual report 2022 Management’s review Strategy and business | Our journey towards a thriving and sustainable future Environment Science-aligned climate action With our 2040 net-zero target being validated as aligned with climate science in 2021, we have spent 2022 focusing on translating our commitment into tangible actions. energy generation in 2023-2024, until we are allowed to completely phase out coal. From a leading climate target to action As the first energy company, Ørsted’s 2040 net-zero target, covering our full value chain, was validated as aligned with science by the Science Based Targets initiative (SBTi) in 2021. An important step to achieving this is our commitment to reduce the emissions intensity in our own energy generation and opera- tions (scope 1-2) by at least 98 % by 2025 compared to 2006. With our long-term target in place, we have focused our efforts in 2022 on launching the next set of initiatives needed to decarbonise our supply chain. Many of our core materials, such as steel, concrete, and fuels, face a steep road towards full decarbonisation. We do not have all the answers, but to get on track for 2040, we need to move now - to pilot and lean into innovative solutions. Plans to meet scienced-based 2025 target unchanged We had a set-back in 2022, with our absolute scope 1-2 emissions increasing by 17 %, as we temporarily had to resume coal use at our Studstrup Power Station. This was due to global scarcity of wood pellets following a ban on imports from Russia and a wood pellet fire at Studstrup. Moreover, following orders from the Danish authorities to temporarily extend operation of three of our coal- and oil-fired power sta- tions in order to ensure the security of the electricity supply in Denmark, we had to delay our 2023 zero-coal target to 2025. We maintain that coal has no place in the future energy system, and our 98 % target for 2025 remains unchanged. However, we will not see steep emission reductions from 23 By 2025, our primary remaining emissions will be from the fuels used for offshore wind logistics and the natural gas used at our power stations for back-up capacity. We have initiated several initiatives to reduce offshore logistics emissions — an area where green options are not yet widely available. This includes our pioneering agreement with a supplier on investing in the world’s first service operation vessel (SOV) that can operate entirely on green fuels. This is a big step towards decarbonising offshore logistics, and together with our systematic approach to fuel saving initiatives, it helps to create critical demand signals to the industry to accelerate the green transition. In addition, we continue to explore ways to further reduce emissions from the remaining gas used at our power stations. Realising net-zero in 2040 Looking towards 2040, our approach to realise net-zero emissions in our value chain is twofold. First, we will gradu- ally phase out our natural gas sales. Second, we will work to decarbonise our renewable energy supply chains, which will be the most challenging part of meeting the target. We took three important steps in 2022: – – – We expanded the expectation to use 100 % renewable electricity by 2025 to all our suppliers — an industry first. We made a new commitment on ‘near-zero’ concrete through the First Movers Coalition to procure at least 10 % ‘near-zero’ concrete by 2030. Together with Climate Group, we hosted the inaugural SteelZero summit, a crucial step in our promotion of poli- cies to decarbonise the steel industry. Together, these commitments are important ways for us to operationalise our 2040 target in the short to medium term. Based on them, we can learn and test different solutions to- gether with partners, and we can push the market to develop and mature green technologies already now. We expect our scope 3 emissions to increase again in 2024 once the Tyra gas field is reopened, and deliveries under our long-term gas sourcing contract with DUC are resumed. We remain on track to meet our 2032 target. To read more about our decarbonisation efforts, including how we now use site-specific life cycle assessments to report on scope 3 emissions, please see pages 14-17 in our sustainability report. Taking credible climate action On our journey towards net-zero, we face the challenge that for many of the low-carbon solutions we urgently need, a fully sustainable option does not yet exist or is not com- petitive at scale and cost. Navigating these less mature areas of sustainability can be difficult for all companies; however, not acting is an option we do not have. We seek to be a catalyst for change and try to tackle the challenge by developing clear guidelines and outlining sustainability ambition levels for our own approach, which we also share with suppliers and partners. In this way, we continually work to strengthen our approach, and we aim to communicate transparently about it. Ørsted annual report 2022 Management’s review Strategy and business | Our journey towards a thriving and sustainable future Environment Green energy that revives nature If built right, renewable energy holds the potential for enhancing biodiversity and improving ecosystems. We want to do just that, and we are dedicated to delivering projects that contribute to reviving our nature. We have set the ambition that all our green energy assets will deliver a net- positive biodiversity impact from 2030 at the latest. Leading a build-out with a net-positive impact on biodiversity We are facing a global biodiversity crisis with 70 % of the world’s wildlife having been lost since 1970. Climate change is one of the main reasons, and the two crises are deeply interconnected. However, if done right, the green energy transition can play a key part in tackling both. To do so, we need to start addressing climate and biodiversity goals together. That is why we set our net-positive biodiversity ambition in 2021, stating that with every asset we build, we want to leave the surrounding ecosystems and wildlife in a better condition than it was before. Moving towards net-positive Since setting our target, we have worked hard to progress. In 2022, we took several exciting steps to move us from ambition to action: – – We have strengthened our dedicated biodiversity pro- gramme. We have onboarded full-time regional bio- diversity leads and taken the first steps to introducing net-positive considerations early in our projects. We are also integrating our Onshore business to the programme, and as a first exciting initiative, we will protect almost 1,000 acres of native prairie as part of our Mockingbird Solar Center in the US together with The Nature Conservancy. We continued to develop and pilot innovative biodiversity projects. We do so to gain experience and learn from our successes and failures with the aim of scaling successful solutions. These include our 3D-printed reefs at the Danish offshore wind farm Anholt (read more here), restoring biodiversity in the UK’s Humber estuary (read more here), and our ReCoral project in Taiwan (read more here). Measuring our impact A key challenge we face today is that no clear frameworks exist for measuring and reporting on biodiversity impacts across both terrestrial and marine ecosystems. This is challenging not only when we wish to measure our own impact, but also for ensuring global alignment on how companies act and report. – We launched an innovative five-year global partnership with WWF. In this partnership, we want to set a new standard for biodiversity protection and restoration in offshore wind development by showing what can be done. Jointly, we will identify, develop, and advocate initiatives and approaches that can enhance ocean bio- diversity. Read more here. To succeed, close collaboration is needed. We support framework developers like the Science Based Targets Network (SBTN) and work with them to develop an industry standard for measuring biodiversity impacts at a corporate level. In the meantime, we are also developing our own framework so that we can already now begin to align on how we measure and report on biodiversity. Mitigating impacts through a circular economy Raw materials are being extracted, produced, and used at a pace and scale that is damaging to our nature. Transitioning to a circular economy — through which we can reduce waste, circulate materials, and regenerate nature — can play a key role in tackling this. We are currently building a strategic approach to circu- larity across our entire value chain. We do so with the aim of reducing our use of raw materials, increasing asset lifespan, and reusing and recycling materials. In 2022, we adopted a commitment to reuse or recycle all solar PV modules from our Region Americas’ solar farms. We also built a circularity roadmap for our monopile foundations to reduce their environmental footprint, including the use of scrap steel. Read more in the sustainability report, page 22. Supporting the transition towards a water-secure world Pressure on global water systems and clean freshwater supplies is increasing. Therefore, in 2022, we developed a programme on water to ensure that our continued build-out supports the transition to a water-secure world with sufficient and clean supplies. This includes our target to reduce our total freshwater withdrawal intensity measured in l/kWh by 40 % from 2021 to 2025. We also work systematically to identify opportunities to reduce or substitute our freshwater use. For our P2X pipeline, we have established guiding water principles that restrict the use of freshwater resources in areas with elevated levels of water stress, instead prioritising the use of alternative sources. Read more in the sustainability report, page 24. 24 Ørsted annual report 2022 Management’s review Strategy and business | Our journey towards a thriving and sustainable future Social A green transformation that works for people We are committed to drive a just transition to a green economy. The challenge is to translate this commitment into concrete action. How do we deliver a rapid build-out of renewable energy that leaves no one behind? Delivering a just transition To succeed with our renewable energy ambitions, we must drive a build-out that works for people. A build-out that is just. This means going beyond ensuring that workers from declining industries are brought into the green economy. It demands that we respect fundamental human and labour rights, promote a diverse and inclusive sector, take active part in developing skills and talent, and support thriving communities where we construct and operate assets. Just transition is about people in our … company supply chain local communities energy industry wider society Narrow, more control Impact scale Wide, less control to build on this experience and define the actions necessary for us to keep contributing to a just transition. Social programmes Objective We are strengthening our social sustainability programmes In 2022, we defined six social sustainability programmes that are essential for delivering a just transition, see table to the right. Some were already familiar to us. Thus, we have built solid practices regarding e.g. safety for years. For others, however, we recognise that we have more work to do. Over the next two years, we will strengthen each programme with long- term targets and detailed roadmaps. Here, we outline how we will work with two of the prioritised areas. To read more about each programme, see our sustainability report pages 26-34. Respecting human rights wherever we operate In 2022, we published our ‘Global human rights policy’, which outlines our commitment and approach to respect human rights standards in everything we do. At the core of the approach is the integration of human rights due diligence in all key business processes. A first step was to perform a corporate human rights impact assessment, which identified Ørsted’s salient human rights impacts and gaps in our existing human rights management system. The findings will inform our continuous efforts to strengthen our human rights due diligence approach. Thriving communities Deliver socio-economic benefits to our local communities in a fair and inclusive way Skills and talent for the green transformation Develop talent inside and outside our company to be the future leaders of the green transition Human rights management and integration Ensure that human rights are respected in our operations, supply chains, and local communities Responsible sourcing of minerals and metals Ensure that our minerals and metals are sourced in a socially responsible way Diverse and inclusive energy sector Safe and better ways of working Improve diversity, equity, and inclusion in our own company and help our suppliers do the same Maintain our strong safety performance and foster a working environment that enables our employees to live fulfilled lives and implement initiatives. In doing this, we are building on experience across our markets. For example, in Choczewo in Poland, we have set up a Community Fund to support local sustainable development opportunities. As part of Sunrise Wind in New York, we have committed to recruit and train workers from marginalised communities. And, at the Port of Taichung in Taiwan, we have inaugurated the largest local operations and maintenance (O&M) facility in Asia in terms of offshore service capacity, supporting the development of local jobs and supply chains. Going forward, we will define a community impact approach, further strengthen our cross-market knowledge sharing, start integrating social impact assessments into early project planning, and track impact data to evaluate initiatives. For more than ten years, we have built experience on what a just build-out can bring. We have developed renewable energy talents in Grimsby, expanded renewable energy supply chains in Taiwan, and promoted women- and minority- owned businesses in New Jersey. As we globalise our business, and our projects impact more and more people, we are keen Being a trusted partner to our local communities We recognise that we have a responsibility to bring economic opportunities to the communities where we operate, and that thriving and supportive communities are critical for a successful build-out. Therefore, in 2022, we began expanding our local communities programme to make sure we have a robust impact management system in place to shape 25 Ørsted annual report 2022 Management’s review Strategy and business | Our journey towards a thriving and sustainable future Governance Governance that enables the right decisions We are embedding sustainability throughout our business practice and processes, carrying our commitment to building green energy in the right way all the way through our operating model to ensure we have a future-fit organisation in an evolving regulatory environment. Delivering on ambitions and mitigating risks To ensure we continue to deliver on our sustainability priorities and to mitigate potential financial and reputational risks, we need to continue to strengthen our efforts to system- atically integrate sustainability into our operating model and key decision-making. This will further unleash the potential from having everyone in Ørsted pulling in the same direction towards our ambitions. Moreover, the reporting and regulatory space is rapidly devel- oping. Sustainability is migrating from the sidelines and into the heart of company reporting. We need to ensure a strong organisation, fit for the future, with still more distinct and complex sustainability reporting requirements and regulation. Embedding sustainability into our operating model To continuously embed sustainability throughout our operating model, we have defined three strategic pillars: i) decision- making & accountability, which focus on using sustainability criteria as one of the key decision drivers in relevant parts of our asset project model, ii) competences & governance, which focus on ensuring that we have the right sustainability compe- tences at the right places in our organisation, and iii) culture & leadership, which focus on building behaviour, mindsets, and awareness that are driven by sustainability improvements. During recent years, we have taken steps to systematically integrate sustainability across our operating model, for example through our responsible business partner, conduct, and tax practice programmes. Following the changes in our short-term incentive (STI) scheme for the leadership team in 2022, we have adjusted our STI scheme for all participant employees, effective from 2023. The new STI supports a stronger link to our 2030 sustainability aspirations. We will assess leadership performance through a combination of group level KPIs and by inspiring individual goals. This approach to set individual sustainability-linked goals will be expanded to all eligible Ørsted employees in 2023. Read more in the sustainability report, page 38. We also built sustainability considerations further into Offshore and P2X. From 2022, all our new Offshore opera- tions and maintenance (O&M) facilities will have a LEED certification, improving the buildings’ environmental and social aspects. In our P2X market development activities, we developed an ESG risk assessment framework that supports systematic screening for decision-making on new market opportunities. To guide us going forward, we have defined a roadmap towards 2025 with activities spanning across the three pillars. A transparent, credible, and future-fit organisation We have increased our engagement with investors through calls and dialogues on our sustainability performance and next steps. It has been an enriching experience to dive further into expectations from a key stakeholder group. We continued advocacy efforts in our industry and beyond, including efforts to deliver credible climate action. At the UN COP27, we called for giving up business as usual and giving way to a build-out of renewables that create value through positive impacts on biodiversity and local communities. We also took part in the formal launch of the Global Offshore Wind Alliance (GOWA) where we will continue to play an active role in advising governments and share best practice on how to speed up the deployment of offshore wind power to more countries across the world. We have endorsed the Corporate Knights’ Action Decla- ration on Climate Policy Engagement to close the say-do gap on countries’ emissions reductions, working with policy-makers and industry associations to Paris-align climate policy activities. Finally, in 2022, we continued to align with EU taxonomy KPIs to show that we not only have activities that contribute mitigating the effects of climate change, but also performing them in a way that respects nature and people. We endorse and align with existing and upcoming regulation We are at a pivotal moment in the reporting sphere, which is rapidly expanding. We fully welcome this development, which will significantly improve data accuracy and transparency and place ESG reporting on a par with financial. We endorse and align our practices to relevant regulatory requirements and standards and welcome the upcoming Corporate Sus- tainability Reporting Directive (CSRD) from the EU. Across our various reports, we show the risks and opportunities climate change can have on our business (TCFD), our greenhouse gas emissions (GHG Protocol), the extent to which our business activities are defined as sustainable according to the EU taxonomy, and how we are advancing in respect of the 17 UN Sustainable Development Goals (SDGs). We will continue our pro-active participation in various phas- es of the regulatory process, engaging with peers, industry groups, and regulators to help shape the legislation. 26 Ørsted annual report 2022 Management’s review Strategy and business | The markets where we operate The markets where we operate The future energy system and the shift in customer landscape We operate across multiple adjacent markets that all have substantial growth potential in the coming years and offer attractive opportunities for us to expand our market presence. Given recent geopolitical developments and the actions and targets set by governments to limit global climate change, we expect that the transformation of the global energy system will accelerate in the years to come. This will bring us significant growth opportunities across all our business areas. cross-national renewable hybrid transmission infrastruc- tures and energy islands, which will be linked to several markets. Such new types of transmission infrastructure will enable significant cost savings and a more efficient use of the energy produced by balancing intermittent electricity generation with demand across two or more markets. In the past year, Russia’s propensity to use energy for geopolitical leverage has underscored how dependence on fossil fuels cannot deliver the security of supply Europe needs. As a result of Russia’s decision to limit gas flows to Europe, many countries have decided to continue to use or reinstate fossil energy sources that negatively affect our climate. The solutions to the objectives of reducing our energy dependence and mitigating climate change are the same: replace fossil fuels with renewables, directly and indirectly electrify energy use, and use energy as efficiently as possible. To decarbonise the global energy system and to increase our energy independence, a large-scale renewable build- out is needed. We believe this build-out will be based on increasingly larger renewable energy projects, which will require a significant scale-up of the transmission infrastruc- ture, both onshore and offshore. To support the significant build-out of offshore wind, we expect to see new types of In addition to widespread green electrification, an important driver of global decarbonisation will be P2X. Renewable hydrogen will become the main decarbonisation vector for heavy industry, long distance transportation, and other hard-to-electrify sectors such as steel, refineries, and chemicals. When renewable hydrogen is processed further into e-fuels, it is expected to be the key instrument in decarbonising heavy transport, such as deep-sea shipping and aviation. The scale-up of P2X is expected to spark the development of entirely new industries and value chains, with companies from various offtake sectors engaging in strategic partnerships with renewable energy developers. This trend, too, will generate significant market oppor- tunities for us, both in the P2X value chains and in the associated required build-out of renewable energy. By 2050, it is expected that nearly 90 % of global electricity generation will come from renewables, with almost 70 % from wind and solar PV alone (IEA). 27 New customer landscape Integrated smart energy systems P2X Cross-national projects and energy islands Massive renewable build-out Ørsted annual report 2022 Management’s review Strategy and business | The markets where we operate Global renewable market forecasts towards 2030 Installed capacity excl. Mainland China GW Europe US APAC Rest of the world ~3,840 ~169 15 % CAGR ~1,120 23 % CAGR ~27 2021 2030 2021 2030 Offshore wind Onshore renewables Renewable H2 & green fuels Installed electrolyser capacity GW Actual 2030 targets & forecasts +120 +100 +90 +70 <1 Installed today Country targets H2 Council IRENA EU H2 strategy1 28 This will require a smart and highly digitalised energy system that can integrate and balance multiple renewable generation sources as well as P2X and energy storage solutions. Digital technologies will play a critical role in optimising energy pro- duction to meet real-time needs across offtake segments. The future customer landscape is also expected to change. Companies are increasingly setting ambitious decarbonisa- tion targets, seeking green solutions directly from energy providers and becoming key drivers of green energy demand alongside governments. An increased corporate demand is contributing to the development of multi-product renewable solutions, combining corporate purchasing of green electrons from a variety of technologies with more sophisticated storage solutions to enable different offtake profiles. In addition, strategically advanced shipping companies such as A.P. Moller - Maersk are leading the development of P2X assets, acting ahead of anticipated EU decarbonisation obli- gations, to execute direct long-term offtake agreements for e-methanol, which is accelerating the P2X build-out. Substantial market growth The global renewable energy market is forecast to grow exponentially towards 2030. This is partly due to the rising political momentum behind the green energy transition, which is resulting in ambitious new renewable energy build- out plans around the world. ← 1 Electrolyser capacity based on REPowerEU target of 10 million tonnes of domestic renewable hydrogen production and 10 million tonnes of imports by 2030. Source: BNEF New Energy Outlook 2022 for Onshore, Solar PV and Batteries; BNEF Offshore Wind Market Outlook H2 2022 for Offshore; H2 Council; EU; IRENA; BNEF Global Hydrogen Strategy Tracker 2022. Some of our core markets are at the forefront of this development, with multiple countries and regions an- nouncing considerably accelerated ambitions. In addition, renewables have become more cost-efficient compared to fossil energy sources, and renewables can play a key role in securing energy supply. The global renewables capacity (offshore wind, onshore wind, solar PV, and energy storage), excluding Mainland China, is expected to increase by a combined average growth rate (CAGR) of 15 % to around 4,000 GW in 2030. Offshore wind is expected to show the fastest growth (23 % CAGR), partly driven by significant build-out of offshore wind in the US and APAC, though Europe will remain the largest region by far. Onshore renewables (wind, solar PV, and energy storage) are more established and have the highest installed capacity. Within onshore renewables, forecasts show a CAGR of approx. 15 % towards 2030. Again, this is driven particularly by the US and APAC, but Europe is expected to maintain its position as the biggest onshore region. Global targets for P2X now exceed 70 GW of installed electrolyser capacity by 2030. Delivering on these will require a very significant global ramp-up from developers, offtakers, and the supply chain since installed electrolyser capacity globally at present is less than 500 MW. The development of infrastructure investment, in particular pipelines, will be an essential element for facilitating this expansion, particularly for transporting renewable hydrogen within Europe. These are in planning stages and expected to be constructed in the second half of the decade. The growing role of multi-technology projects With governments around the world raising their ambitions and targets for renewable energy build-out, there is an ever-growing need for integrating multiple renewable energy technologies. Ørsted annual report 2022 Management’s review Strategy and business | The markets where we operate As offshore wind has been commoditised and has become cost-competitive to fossil energy sources, governments are now moving away from competition on lowest re- quired subsidy and towards competition on either 1) pure concession payment or 2) a combination of concession payment and other value elements (sustainability, local content, ability to deliver, etc.). Competition based only on the highest concession payment incentivises developers to narrowly focus on how to drive further aggressive cost reductions of the offshore wind technology. This puts additional pressure on the supply chain and leaves no room to invest in project-specific solutions that otherwise could have created a positive impact on biodiversity, advanced social sustainability, and stimulated innovation and system integration. In 2022, some regulators proposed energy price caps or windfall taxes to protect business and consumers against increasing energy bills. In the EU, a price cap of EUR 180 per MWh was proposed, and the UK implemented a 45 % windfall tax on power utility profits above GBP 75 per MWh from January 2023. In our ‘Need for speed’ white paper published in April 2022, we outlined the urgency of speeding up regulatory pro- cesses and tenders to meet the ambitious decarbonisation and renewable build-out targets set by governments around the world. We believe this is crucial to ensuring sufficient renewable energy build-out to secure Europe’s energy supply and help keep the global temperature increase below 1.5 °C by 2100. Large-scale renewable energy build-out will require multi- ple sources and forms of green energy in order to balance demand and supply and to mitigate the constraints of energy infrastructure (such as transmission grids). One way of integrating renewable energy technologies is by developing energy islands, which we believe will play a significant role in future energy systems. How- ever, we also see a role for multi-technology energy hubs in various other forms, with the potential to combine (among others) wind energy, solar PV, P2X, carbon capture, and energy storage. Ørsted is positioned ideally to develop multi-technology projects and cater for the growing customer demand. Our capabilities and experience span offshore wind, onshore wind, solar PV, energy storage, P2X, and combined heat and power plants. On top of this, our existing assets (both operational and under development) provide a strong position from which to integrate additional renew- able energy technologies. With our recent reorganisation, structuring our business areas into a regionally organised set-up, we are even better placed to integrate our work across technologies. A multi-technology platform will help us optimise energy systems, drive cost reductions, and realise portfolio synergies. Main industry challenges to solve in the coming years Although we expect a significant build-out of renewable energy in the coming years, the renewables industry is presently facing several challenges. With rising inflation and interest rates and with global supply chain challenges (such as bottlenecks and scarcity of green materials), increased pressure is placed on developers and manu- facturers alike. 29 Increasing political momentum Governments are raising renewable energy ambitions Policies & legislation New targets & initiatives in 2022 To be achieved by REPowerEU 45 % renewable energy Increased renewables investments Esbjerg declaration (North Sea) 65 GW installed offshore wind capacity 20 GW renewable hydrogen production capacity 150 GW installed offshore wind capacity Marienborg declaration (Baltic Sea) 19.6 GW installed offshore wind capacity Pursuing faster permitting processes Inflation Reduction Act Tax credits to incentivise investment in renewable energy, P2X, and energy storage in the US British Energy Security Strategy Up to 50 GW installed offshore wind capacity Powering Australia 82 % renewable energy Selected targets & initiatives in previous years OFW capacity build-out target 20 GW installed offshore wind capacity Green New Deal 12 GW installed offshore wind capacity OFW capacity build-out target 30 GW installed offshore wind capacity 2030 2030 2030 2050 2030 2030 2030 2035 2030 2030 Ørsted annual report 2022 Management’s review Strategy and business | Business model Business model Our core activities We create value by developing, constructing, operating, and owning renewable assets and by providing energy products to our customers. f u n d i n g x e q u i t y a e t r u c e d s n Build Select suppliers and contractors and adhere to local content promises n a ss e t s a Far m d o w Deliver on C PPAs a n d O & M a g r e e m e n t s Operate Ensure high availability and balance power to the grid ules c ole d m n s a n o r t c e l e r o f s t n e m e e r g a s A P P C e r u c e s d n a s V J m r o F e k a t f f o e r u c e s r o / d n a s V J m r o F Develop Secure our pipeline through grid access and permits Energy products Own Manage and optimise our portfolio of assets and partnerships 30 Key resources Financial capital — natural and human resources innovation culture — relational capital Value created Society — customers employees — shareholders Partnerships Ørsted annual report 2022 Management’s review Strategy and business | Executing our strategy Executing our strategy To reach our strategic aspiration of becoming the world’s leading green energy major, we are continually seeking to expand our growth, create value, and seize new opportunities. Across our business, we are making bold and strategic choices to deliver results, both in the short and the long term, and we have made considerable strategic progress during 2022. In the following sections, we have outlined some of our concrete achievements in the past year for each of our business areas. → Colleagues at Gode Wind, Germany. 31 Ørsted annual report 2022 Management’s review Strategy and business | Executing our strategy Offshore wind Our Offshore business reached significant milestones during 2022. We were awarded a new project in Europe, corresponding to a fifth of the total awarded offshore capacity in 2022 (excluding seabed lease auctions), took final investment decision (FID) on a development project in the US, commissioned the world’s largest operational offshore wind farm, and advanced the construction of our other projects, including generation of first power from Greater Changhua 1 & 2a. We also successfully farmed down two of our projects in accordance with our farm- down strategy. We remain the world leader in offshore wind, having developed around a third of the global capacity installed, excluding Mainland China. We have played a key role in maturing the industry and have built more offshore wind farms worldwide than any other company. By the end of 2022, we had 8.9 GW of capacity installed, 2.2 GW of capacity under construction, and further 11.2 GW of capacity awarded resulting in a firm capacity of 22.2 GW. This aligns with our annual build-out targets to reach 30 GW installed capacity by 2030. The additional 7.8 GW needed will be based on our substan- tiated pipeline of around 16 GW and our opportunity pipeline of around 57 GW. The oversized opportunity pipeline provides us with the flexibility we need to select only projects that are truly value-creating. Strategic progress and expansion of our portfolio During 2022, we commissioned our Hornsea 2 project in the UK, now being the largest operational offshore wind farm in the world, and we were awarded the Hornsea 3 project, with an expected commissioning in 2027, if FID’ed. If Hornsea 3 is built, the Hornsea zone, including Hornsea 1, 2, and 3, will have a total capacity of more than 5 GW, making it the world’s largest offshore wind zone and providing power to approx. five million homes in the UK. In Denmark, we formed a new partnership with Copenhagen Infrastructure Partners to develop up to 5.2 GW of offshore wind across four projects. The partnership aims to accelerate the green transformation, create value in the offshore wind industry, and create a Danish business and export stronghold within P2X. 1 Projects that have reached a level of maturity, such as secured exclusivity through a lease, secured consent or environmental impact assessment (EIA), or established partnerships, but not yet taken final investment decision (FID). 2 Refers to early-stage projects which we are actively pursuing through tenders. 3 Refers to the combination of capacity installed or under construction which we have contracted or have been awarded. 32 In the Americas, we took FID on our 130 MW US project South Fork Wind, which is part of the Northeast Programme with a total contracted capacity of 1.8 GW. The project has started offshore construction and is expected to be opera- tional in 2023. In our Ocean Wind 1 project, we continued to mature the project boundary conditions and secured key supply chain contracts. The Bureau of Ocean and Energy Management (BOEM) published the project draft environ- mental impact statement in June 2022, a major milestone in the federal permitting process. In January 2023, we signed an agreement to purchase PSEG’s 25 % equity stake in the project. The transaction is expected to close in H1 2023. Offshore wind build-out plan Gross renewable capacity 30 GW 2030 ambition 11.1 GW Installed capacity + decided capacity 57 GW Opportunity pipeline2 16 GW Substantiated pipeline1 22.2 GW Installed capacity + decided + awarded = firm capacity3 Greater Changhua 2b & 4 920 MW Skipjack 966 MW Baltica 3 1,045 MW Ocean Wind 1 1,100 MW Ocean Wind 2 1,148 MW Baltica 2 1,498 MW US North-East cluster 1,628 MW Hornsea 3 2,852 MW South Fork 130 MW Greater Changhua 1 & 2a 900 MW 8.9 GW Installed capacity German portfolio 1,166 MW Ørsted annual report 2022 Management’s review Strategy and business | Executing our strategy Installation of blades at Hornsea 2, the UK. 33 We have also signed an agreement that sets up a partner- ship with Repsol, a global multi-energy company, to explore the joint development of floating offshore wind in Spain. The agreement marks our next step into floating offshore wind. Due to the country’s deep waters, this will allow Spain to unlock the potential of its extensive coastline and transform Spain into a European floating offshore wind hub. With Ørsted’s three decades of experience in global offshore wind and Repsol’s insights into the local market conditions, we are strongly positioned to support Spain’s continued energy transition. Growing our usage of e-methanol As part of our continued efforts to decarbonise, we signed a ten-year lease in 2022 for the world’s first green fuel vessel for offshore operations. Esvagt, a market leader in service and support for offshore wind, will deliver the service operation vessel (SOV), which will be powered by batteries and dual-fuel engines, capable of sailing on e-methanol produced from wind energy and biogenic carbon, which will lead to an annual carbon emissions reduction of approx. 4,500 tonnes. In Asia Pacific, our first large-scale wind farm Greater Changhua 1 & 2a (0.9 GW) generated first power in April. The project is moving forward, and we expect COD to be in H2 2023. Additionally, we expect FID on Greater Changhua 2b & 4 (0.9 GW) in Taiwan during 2023, with expected commissioning in 2025. Farm-downs to free up capital for future projects Farm-down agreements continue to be strategically important for Ørsted as an essential part of our efforts to raise capital for accelerating new renewable energy projects across our markets. During 2022, we completed the divestments of two major assets. The agreement to farm down 50 % of the 0.9 GW Borkum Riffgrund 3 project in Germany to Glenmont Partners, one of Europe’s largest fund managers exclusively investing in clean energy infra- structure, was completed in February. The farm-down of Hornsea 2 in the UK was completed in September, following the commissioning of the 1.3 GW wind farm. The 50 % divest- ment to a consortium comprising AXA IM Alts and Credit Agricole Assurances was one of the largest renewable energy M&A transactions ever. Both transactions secured a NPV retention of around 100 %. Further expansion into floating offshore wind Floating offshore wind is a rapidly maturing technology with an enormous potential for expanding offshore wind genera- tion in existing markets and deploying offshore wind in new geographies. We are partnering with the offshore project developer Simply Blue Group and Subsea 7 on the 100 MW floating project Salamander in Scotland. The project will be developed in a joint venture, with Ørsted owning 80 %, and is located off the east coast of Scotland. Ørsted annual report 2022 Management’s review Strategy and business | Executing our strategy Onshore renewables Onshore wind build-out plan Gross renewable capacity The contracts for both projects have upside sharing structures on the power price. These structures reduce downside risks and allows for the capture of additional revenue compared to traditional PPAs. 17.5 GW 2030 ambition Our Onshore business made significant strategic progress in 2022. We took a major step to expand our geographic footprint through the acquisition of Ostwind in Europe and strengthened our market positions in the Americas and in Europe by commissioning assets under construction and taking FIDs. In total, we added 825 MW of capacity to our operating portfolio by commissioning three projects and acquiring a German and French platform and an operational wind farm in the US. By the end of 2022, we had 4.2 GW of capacity installed and 2.1 GW of capacity under construction. To reach our ambition of 17.5 GW installed onshore capacity by 2030, we will need to add an additional 11.2 GW to our firm capacity of 6.3 GW. The additional capacity will be based on our substantiated pipeline of around 12.6 GW and other opportunities that may arise. Strategic progress and expansion of our onshore portfolio In the US, we commissioned Haystack in Nebraska (298 MW wind), and the wind phase of Helena Energy Center in Texas (268 MW wind). Both projects qualify for 100 % of the pro- duction tax credit. Most of the production from Haystack is contracted under long-term power purchase agreements with Pepsi, Hormel, and Target, while the wind phase of Helena Energy Center is contracted with Henkel. 1 Projects that have reached a level of maturity, such as secured exclusivity through a lease, secured consent or environmental impact assessment (EIA), or established partnerships, but not yet taken final investment decision (FID). 2 Refers to the combination of capacity installed or under con- struction which we have contracted or have been awarded. 34 In addition to commissioning our own assets, we finalised the acquisition of Ford Ridge, a 121 MW operational wind farm in Illinois. This is our second project in the Midconti- nental Independent System Operator (MISO) area, which is an attractive market and one of the largest in the US. The project is eligible for 100 % of production tax credits, and its production is contracted under long-term PPAs with Mars and its suppliers. We took FID on three US projects. The first, Sunflower, is a 201 MW wind project in Kansas, which we acquired as an early-stage development project together with Lincoln Land in 2021. The project was matured and significant- ly advanced towards final investment decision in April 2022. The project is eligible for 100 % of the production tax credit and is on track to reach commercial operation before the end of 2023. The second, Mockingbird, is a 471 MWAC solar PV project in Texas, which we expect will be the first solar project in our portfolio to qualify for 100 % of the production tax credit, as this scheme was recently expanded by the US Inflation Reduction Act to include solar PV projects. The third, Eleven Mile, is a com- bined solar PV (300 MWAC) and storage (300 MW) project in Arizona. Both Mockingbird and Eleven Mile are expect- ed to reach commercial operation before the end of 2024. In addition, we are constructing Old 300 and the solar phase of Helena Energy Center. Both are US projects and have been subject to delays due to the Uyghur Forced 12.6 GW Substantiated pipeline1 6.3 GW Installed capacity + decided + awarded = firm capacity2 Ballinrea 65 MW 16 MW 29 MW 75 MW 201 MW 250 MW 6.2 GW Installed capacity + decided capacity Ballykeel Lisheen 3 Ostwind Sunflower Wind Sparta Solar Old 300 430 MW Mockingbird 471 MW 4.2 GW Installed capacity Eleven Mile 600 MW Ørsted annual report 2022 Management’s review Strategy and business | Executing our strategy Amazon Wind Farm, Scurry County, Texas, the US. 35 Labor Prevention Act (UFLPA) and related legislation, resulting in detainment of module shipments while trace- ability documentation is collated. During 2022, however, we installed around 78 % of project capacity at Old 300 with modules already cleared and delivered to the site. The remaining modules are expected to be delivered during 2023, and we expect full commercial operation before the end of 2023. For the solar phase of Helena Energy Center, we are also planning for commercial operation before the end of 2023. Farm-downs to free up capital for future projects In October, we closed a transaction with ECP to divest 50 % of our ownership interest in a US project portfolio consisting of Plum Creek, Willow Creek, Lincoln Land, and Muscle Shoals. The four projects all have tax equity partners, who will remain partners following the divestment. The farm-down is a first for the Onshore business and entailed a NPV retention of around 100 %. We expect to continue to leverage farm-downs to help raise capital to fund new value-creating growth. We expanded our footprint across Europe, entering multi- ple new markets. In September, we closed the acquisition of Ostwind and added 152 MW wind and solar capacity in operation and under construction and 526 MW of advanced development projects to our portfolio. The acquisition marked our entry into the German and French onshore markets. In 2022, we took FID on three German and French wind farms with a total capacity of 68 MW. Following Ørsted’s acquisition of Ostwind, Caisse des Dépôts et Consignations, a co-investor in parts of Ostwind’s operating portfolio in France, decided to exercise an option to acquire Ostwind’s shares (totalling 87 MW) of the projects that Ostwind and Caisse des Dépôts et Consignations co-owned. During 2022, we commissioned Kennoxhead 1, a 62 MW wind farm in Scotland, the UK. In Spain, we entered into four partnerships to pursue early-stage solar and onshore wind projects. Growing our corporate customer portfolio During 2022, we announced offtake contracts with seven companies globally. The majority of the PPAs signed in the US was for projects we either commissioned during the year or are planning to bring online during 2023. At the end of 2022, a significant part of the energy generation from our asset portfolio of onshore wind and solar projects across the US and Europe, including the UK, were contracted with external counterparties with an average duration of 12 years. The contracted share for most individual projects ranges from 65 % to 100 % and is dependent on the market, project risk profile, attractiveness of the contract terms, and the risk-reduction potential. Most of our PPA counterparts are strategic customers whose businesses span geographies and technologies. In this sense, our diverse Onshore asset platform is commercially attrac- tive and positions us as a trusted partner for companies seeking to offtake green energy solutions. Ørsted annual report 2022 Management’s review Strategy and business | Executing our strategy P2X Renewable hydrogen and e-fuels are critically important in the quest to decarbonise the global economy and to create a world running entirely on green energy. They are the most promising routes to decarbonise hard-to-electrify sectors, such as heavy road transport, deep-sea shipping, aviation, and the chemical industry. We have ambitious plans for accelerating development of renewable hydrogen produc- tion and e-fuels, and we made noteworthy progress across several projects during 2022. for maturing the European and global P2X industry to being a genuine alternative to imported fossil fuels. The Danish government has subsequently awarded DKK 600 million in funding towards realising the first phases of ‘Green Fuels for Denmark’, developing electrolysis capacities of 10 MW, 100 MW, and 300 MW, respectively. Once it is fully developed, the project aims to reach a total installed electrolyser capac- ity of 1.3 GW for producing green fuels for shipping, aviation, and heavy road transport. Strategic progress and expansion of our P2X portfolio In December, we took FID on the FlagshipONE project, a late-stage development project in Northern Sweden. We expect to commission it in 2025. The facility comprises a 70 MW electrolyser and is expected to deliver 50,000 tonnes of e-methanol from the renewable hydrogen synthesised with biogenic carbon derived from the host CHP plant. Once completed in 2025, this is expected to be the largest e-methanol facility in Europe and will catalyse the decarbonisation of the maritime sector. Another valuable step in 2022 for our ‘Green Fuels for Denmark’ project was that we signed a letter of intent with the Danish district heating transmission companies. The agreement is to utilise surplus heat from carbon capture and P2X at Avedøre Power Station for district heating purposes. Avedøre Power Station has been designated to capture and deliver part of the carbon for the first phases of ‘Green Fuels for Denmark’. In addition, the power station is also expected to supply carbon for storage and serve as a hub for other actors with carbon emissions in the Greater Copenhagen area. During the past year, we expanded our P2X geographical footprint to the US by agreeing on a landmark fuel supply concept with A.P. Moller - Maersk to deliver 300,000 tonnes of e-methanol to supply Maersk’s newly ordered e-methanol vessels. The facility will comprise a 675 MW electrolyser located on the US Gulf Coast, powered by approx. 1.2 GW of dedicated renewable energy from onshore wind and solar PV. Our ‘Green Fuels for Denmark’ project reached an impor- tant milestone in 2022, as it was identified as an ‘Important Project of Common European Interest’ (IPCEI). IPCEI projects contribute to sustainable economic growth, job creation, and the competitiveness of the EU economy and are key enablers We continue to work closely with Green Hydrogen Systems, the electrolyser supplier, on their rectification of equipment shortcomings to finalise the execution phase of our 2 MW H2RES pilot project at Avedøre Power Station funded by the Danish Energy Technology Development and Demonstration Program (EUDP). The ongoing delay to first hydrogen, expect- ed in H2 2023, is an important reminder that although the P2X industry has a lot of potential, there are also significant challenges in scaling up equipment manufacturing and maturing the suppliers to meet society’s demands. Given our experience in doing this within offshore wind, we con- sider that this plays to our strengths, and we are extracting valuable learnings from this early project. 36 Lastly, we have continued to mature the rest of our port- folio of P2X projects. Notably, our Haddock Project in the Netherlands has been selected as one of the recipients of funding in the Dutch government’s IPCEI tender, and Lingen Green Hydrogen Project in Germany has been shortlisted as an IPCEI project. Our hydrogen test facility at Avedøre Power Station, Copenhagen, Denmark. Ørsted annual report 2022 Management’s review Strategy and business | Executing our strategy CHP plants and long-term gas contracts During 2022, we harvested the benefits of having a broad portfolio of generation assets. Our combined heat and power (CHP) plants not only filled the gap in production from renewable generation, but also benefitted from high power prices and attractive spreads. In October, the Danish authorities ordered us to continue operation of Esbjerg Power Station beyond Q1 2023 and to resume operations of a coal-fuelled unit at the Studstrup Power Station and an oil-fuelled unit at Kyndby to ensure the security of electricity supply in Denmark. The order applies until 30 June 2024. To help secure the Danish gas supply for the 2022/2023 winter period, we took all possible measures to inject gas into Danish gas storages under our capacity contracts during the summer period. We also entered into a gas agreement with Equinor under which Equinor will supply 8 TWh of Norwegian gas to Denmark via Baltic Pipe from 1 January 2023 until April 2024, covering the period when the Tyra field is not supplying gas to Denmark. The agreement strengthens the security of supply in Denmark and will be supplementing our purchase of biogas and gas from the South Arne field. Together, these offtake agreements will more than cover the consumption of our Danish and Swedish B2B customers. Gazprom Export suspended its deliveries under the sourcing contract from 1 June 2022. The contract with Gazprom Export has subsequently been terminated pursuant to the provisions in the contract due to long-term force majeure on the part of Gazprom Export. 37 We initiated a process for identifying the right owner of our Renescience business, including our waste treatment facility in Northwich in the UK. The Renescience technology has great potential to help solve the increasing global waste challenge, and Ørsted has been a successful incubator for the technology. However, waste treatment is no longer part of our business model and strategic focus. Studstrup Power Station, Studstrup, Denmark. Ørsted annual report 2022 Management’s review Strategy and business | Risks and risk management Risks and risk management Top 6 business risks Effect on our value and credit metric Risks are a natural and integral part of our business activities, and our risk profile changes continuously. We aim to mitigate our risks and reduce them to an acceptable level through risk management. The purpose of our risk management is to identify and quan- tify our risks and decide how best to manage and mitigate them. We assess the extent to which individual risks are acceptable or perhaps even desirable as well as the extent to which these risks can be reduced to ensure an optimum balance between risk and return. Besides business risks (incl. financial risks), we are exposed to risks in connection with legal compliance, climate change, ESG, and sustainability, both at a strategic and operational level. A large part of our earnings is generated from offshore wind, with the UK and Continental Europe being the key contrib- utors. However, with our expansions into the US and Asia Pacific and into onshore wind, solar PV, and P2X, our future earnings continue to be spread across more geographical regions and technologies. Therefore, political and other macroeconomic factors play an important role in our risk management. When we invest in new assets and activities or divest assets, the consolidated risks associated with our portfolio change. Therefore, we assess the impact of a given decision on the portfolio upfront. of a short-term (0-2 years), a medium-term (2-5 years), a long- term (5+ years), or a recurring nature. All our risks are then consolidated and evaluated at Group level. The ultimate responsibility for all individual risks rests with a member of the Group Executive Team. The top six business risks identified are shown to the right where they are illustrated based on their potential impact (post-risk mitigation) on our value and credit metrics over the next years. You can read more about these risks on the following pages. We have similar processes in place for identifying and prioritising risks related to ESG, sustainability, and legal compliance. However, as these are assessed using different parameters, we do not show them in a consolidated picture together with the business risks. A description of the most significant ESG and sustainability risks can be found in our sustainability report. We work systematically with risks. All business segments, regions, and selected staff functions identify and prioritise business risks. An assessment is made of the potential financial impact of individual risks, and whether they are → Quantification of risks is based on a scenario where the risk occurs with 10 % probability (P90). Our Internal Audit function has examined the process for identifying and measuring the accompanying portfolio risks. 38 High 5 2 1 3 6 4 e u l a v n o t c a p m I Low High Impact on FFO/adjusted net debt 1 2 3 4 5 6 (#1 in 2021) Financial markets risks (#4 in 2021) Power prices and energy markets (#3 in 2021) Cost inflation and supply chains (new in 2022) Regulatory intervention (#2 in 2021) Competition (#6 in 2021) Cybersecurity Ørsted annual report 2022 Management’s review Strategy and business | Risks and risk management In addition to our ordinary business risks, we are exposed to risks which have a very small probability of occurring, but which could potentially impact our finances and/or reputa- tion substantially. These risks include, but are not limited to: – fatal injuries – strong hurricanes, typhoons, hailstorms, arctic blasts, or earthquakes, especially in Taiwan, which may lead to the partial loss of offshore and onshore wind farms, solar PV farms, and storage assets broken pipes at the Nybro Gas Treatment Plant in Denmark, which may lead to personal injury and damage to the environment breakdowns at power stations that may lead to personal injury and partial loss of assets. – – After risk-reducing measures are implemented, the Group Executive Team assesses whether the level of each risk is appropriate, or if it is higher than the desired level. If the risk level is still too high, further risk reducing measures are initiated to the extent possible. Climate-related risks Climate change presents financial risk to the global economy. To mitigate the impacts of climate change, it is important to understand the risks (both physically and transitional) and opportunities presented by rising temperatures, climate-related policies, and emerging technologies in our changing world. During the year, we have assessed whether our taxonomy- eligible activities are taxonomy-aligned by determining if they: 1) contribute substantially to climate change mitiga- tion, 2) do no significant harm to the other environmental objectives, and 3) comply with the minimum safeguards. Our assessment showed that all our eligible activities were aligned. Development in risks during 2022 We have introduced ‘Regulatory intervention’ as a new top 6 risk in 2022 and have seen changes in the relative importance of our top risks from last year. ‘Financial markets risks’ (previously ‘Inflation and interest rates’ and ‘Currency risks’) remain our number 1 risk. During the year, we have seen a substantial increase in inflation and interest rates across the regions where we operate as well as volatility in the foreign exchange markets. ‘Power prices and energy markets’ (previously ‘Currencies and energy prices’) have been moved up as our second largest risk in 2022. The recent surge in energy prices have led to an increase in this risk assessment. As a response to the unintended impacts from hedges, we have established and are in the process of implementing a new risk management framework to reduce the volatility from financial instruments and bring back the inherent predictability of earnings that our contracted and regulated activities possess. governing bodies have started to implement price caps or windfall taxes to help businesses and consumers with their increasing power bills. This could have an adverse impact on our revenue from power generating activities if implemented without consideration of fixed-price contracts and hedged volumes. ‘Competition’ remains in our top six risks, but has dropped down to our fifth largest risk, mainly because the other risks have increased in magnitude. ‘Cybersecurity’ remains our sixth largest risk. The geopolitical development over the past year has shown that cyberattacks remain a threat to our operations. It is of the utmost impor- tance that we protect our infrastructure and systems from malicious attacks. COVID-19 During the year, we have seen some adverse impacts of the pandemic, mainly related to our supply chain. While COVID-19-related lockdowns among our suppliers had some adverse impact on the construction timeline for some of our projects, we expect these delays to only result in a limited overall impact on the project economics. As climate-related risks and opportunities are directly linked to our green vision and strategy, we address them as an integral part of our daily business, and we report on them as recommended by the Task Force on Climate-related Financial Disclosures (TCFD). Read more about our climate- related risks on page 41. ‘Cost inflation and supply chains’ remain our third largest risk in 2022. The still increasing cost inflation and, to some extent, COVID-19-related delays remain in the market. ‘Regulatory intervention’ is placed as our fourth largest risk. With the increasing power prices throughout Europe, the 39 Ørsted annual report 2022 Management’s review Strategy and business | Risks and risk management 1. Financial markets risks 2. Power prices and energy markets 3. Cost inflation and supply chains 4. Regulatory intervention Description Our financial markets risks are related to volatility in the macroeconomic environments where we operate. Changes to inflation rates, interest rates, and foreign exchange rates all have an impact on the value of our assets. To a certain extent, our medium- to long-term earnings can be expected to follow the devel- opment in consumer and market prices, thereby protecting the real value of our assets and equity. This is the case for earnings related to our UK wind farms. However, we are exposed to inflation risk on projects with fixed nominal cash flows, as an increase in inflation will erode the expected real value of the revenue. Our largest currency exposure stems from offshore wind farms in the UK, but activities in the US and Taiwan have increased our exposure to USD and NTD significantly. Potential impact Fluctuations in interest rates, inflation, and foreign exchange rates may adversely impact our earnings and the value of our assets. Based on our GBP exposure after hedges, a 10 % decrease in the GBP/DKK exchange rate will result in a loss of DKK 1.4 billion over the period 2023- 2027, all else remaining unchanged. Mitigating actions Our inflation and interest rate exposures are managed by matching assets and liabilities in the same currency and with similar payment structures. Our currency exposure is managed by actively hedging within the first five years. Read more about inflation and interest rate risks in note 6.4 and currency risks in note 6.2. 40 Description Power price risks primarily originate from the sale of our renewable power generation in the UK, the US, and north-western Europe. Our CHP plants entail a spread risk due to the difference between the prices of the power generated and the fuel consumed. Furthermore, we are exposed to second-order risks arising from power price hedges not fully matching our actual revenue exposure (ie. position, intermit- tency, and regulatory risks). We are also exposed to liquidity risks, as we are required to post collateral at exchanges if our positions are ‘out of the money’. Potential impact Fluctuations in energy prices and energy policies can have an adverse effect on our earnings and/ or liquidity. During 2022, we saw negative effects from volume- related overhedging of DKK 3.8 billion due to lower generation combined with soaring energy prices. There is a risk that we could see the same effects in 2023 if our power generation falls short of the hedged volumes, and the energy prices increases. Based on our power price exposure after hedges, a 10 % decrease in the power price will result in a loss of DKK 4.0 billion over the period 2023-2027, all else remaining unchanged for our offshore and onshore assets. Mitigating actions To keep cash flows stable, we have historically hedged energy prices for up to five years. Based on a review of our hedging needs and learnings over the recent 18 months of unintended impacts of high hedge levels together with signif- icant changes in market prices and volatility, we have adjusted our hedging policy to encompass a shorter hedging horizon and lower hedge levels. Read more about energy price risks and our new hedging framework in notes 6.1 and 6.3. Description As a global renewable energy developer, we are exposed to risks related to cost inflation, supply chain bottlenecks, performance of new suppliers, and suppliers’ financial positions, including from derived consequences of COVID-19. Among other things, we are exposed to highly volatile prices, which are influenced by high global demand with widespread application in various sectors. As the industry grows with continuous new technological developments, we are exposed to potential bottlenecks in parts of the supply chain if there is only a limited number of suppliers capable of meeting the future demands. Therefore, it is important that new suppliers enter and stay in the market. We are also exposed to counterparty risks if one of our suppliers should default or deliver unsatisfactory products. Furthermore, we are exposed to import restrictions and price increases related to trade restrictions. Potential impact Disruptions in the supply chain or sudden inflation in key materials could result in project delays and budget overruns. An example of a supply chain bottleneck is the limited number of vessels with sufficient lifting capacity due to the increase in wind turbine and foundation size. These technical limitations coupled with an increased demand for offshore wind have increased the market price for installation vessels with up to 75 %. Mitigating actions To combat cost inflation, we have implemented a hedging programme for steel and other commod- ities, which will be rolled out to our asset projects. Furthermore, we enter into volume agreements and source wind turbines from key suppliers in a timely manner to reduce uncertainty. Description Following the recent spike in European energy prices, regulators have introduced energy price caps and windfall taxes to alleviate the financial burden of higher energy prices for businesses and con- sumers. A new regulation, still subject to national implementation, is one of the regulatory initiatives being issued. It will be aimed at temporarily capping revenues for electricity producers – notably wind, solar PV, and nuclear. Hence, in the EU, a revenue cap of EUR 180/MWh will initially be in place from 1 December 2022 until 30 June 2023. Important for Ørsted, the revenue cap regulation should reflect actual revenue by taking hedges and other risk mitigation measures properly into account. We are in constructive dia- logue about this with governments in the markets where we operate. In the UK, regulators have announced the ‘Electricity Generator Levy’, which entails a 45 % additional levy on revenue above GBP 75/MWh, effective from 1 January 2023 to 31 March 2028. Furthermore, in Ireland, a EUR 120/MWh cap was implemented on 1 December 2022. Potential impact After hedges, fixed-price contracts, and the guaranteed German subsidy levels have been considered in the final regulation, the potential impact on Ørsted is significantly reduced. However, given the complexity associated with hedging strategies, including in which countries and legal entities these activities are performed, there is a risk that national implementation of any such regulation is counterproductive. Hence, an effect on revenue from our UK ROC wind farms, our offshore assets in Germany, the Netherlands, and Denmark, and our onshore assets in Ireland may occur. Our Danish multi-fuelled combined heat and power plants will to a large extent be exempted from the cap. Our process for vetting new suppliers is thorough, and we have strict credit risk policies in place to manage credit and counterparty risks. Mitigating actions We are in constructive dialogue with governments in the markets where we operate. Ørsted annual report 2022 Management’s review Strategy and business | Risks and risk management 5. Competition 6. Cybersecurity Legal compliance Climate-related risks Description Global renewable energy markets are expected to grow rapidly over the next decade in all the technological areas where we are present. Key drivers for this growth are ambitious government policies and targets, the push from corporates for the green transition, and significant cost reductions. Competition in the renewable energy industry is intensifying, driven by the increasing market opportunities. New players are entering the market, not least the oil majors, who are increasingly setting high targets for their build-out of renewable energy. Lately, we have seen some of the consequences of the new competitive landscape. Many auctions, tenders, and lease rounds have been awarded to bidders at extreme prices (i.e. Japan’s first fixed- bottom offshore wind auction, the New York Bight seabed lease sale, and the Crown Estate’s UK seabed leasing round 4). Potential impact These extreme awarded prices propose a risk for the entire renewable build-out where it will not be possible to sustain a healthy and sustainable renewable global business. In addition, there is a risk that we will not win the targeted capacity in the auctions and tenders in which we participate. Mitigating actions To ensure our competitive edge, we will continue to utilise portfolio-scale advantages and knowhow gained from previously executed projects to devel- op supply chain solutions and reduce costs and risks. Over the last years, we have established a dedi- cated P2X business and entered into key strategic partnerships in new markets to ensure our competitiveness. 41 Description The cybersecurity risks are a product of individu- als, groups, and nations actively working to harm and profit off of Ørsted. As a green energy major, we are exposed to several different cyberattack threats: ransomware attacks, data exfiltration attacks, cyber-physical impact attacks, and more. Our adversaries’ capacities and capabilities are constantly improving, and we must strive to stay ahead. Furthermore, the energy crisis and ongoing war in Ukraine have resulted in an increased cyber threat from a geopolitical context where Russian hackers have been known to target energy grids and assets. Potential impact Minor digital risk events, such as viruses and attempted break-ins, are everyday risks without significant impact. However, major cyberattacks or events may impact all or part of our assets or, in the event of a ransomware attack, have an impact on our financial position. Mitigating actions We face different types of cyber risks. Some are related to our assets and some to our systems. Thus, we mitigate cyber risks with several different initiatives, which are continuously assessed and prioritised based on our strategic cybersecurity risk assessment with the aim of lowering our risk exposure. At our operating assets, we have deployed production cyber defences to enhance protection against onsite and offsite attacks. In addition, we have a top-level ‘Information and cybersecurity policy’ supported by our global governance model, we have regular trainings, and we participate in fora on information and knowledge sharing. This way, our cyber capability is continuously improved in order to identify, protect, detect, respond, and recover across the enterprise and production sites. Description Risks associated with legal compliance are assessed based on financial and reputational significance and probability. Our most signifi- cant risks are 1) tax law, 2) financial regulation, and 3) offshore grid code compliance. (1) We operate in tax regimes with different tax rules and rates, and our tax affairs span over corporate tax compliance, transfer pricing, and indirect taxes. (2) We are subject to several financial regulations, such as REMIT, MAR, EMIR, Dodd Frank, MiFID, SFTR, and AML1. The financial regulations are relevant for a large part of our activities. (3) In every country where we operate, we have to meet certain grid code requirements set by the transmission system operator (TSO) to be allowed to generate and supply electricity to the grid. Potential impact Failure to comply with the above-mentioned rules and regulations may result in severe legal sanctions, such as imprisonment, fines, and damage claims, but also in possible disconnec- tion from the grid or loss of generation license. Mitigating actions (1) We have implemented a comprehensive tax control framework and mandatory compliance, including transfer pricing documentation, in line with the OECD recommendations and local requirements. This has been prepared on a contemporary basis to mitigate our tax risks. (2) We have implemented comprehensive policies, procedures, training, and controls for relevant parts of our business to ensure compliance with financial regulations. (3) We have implemented grid code govern- ance to provide clear responsibility, and we have a ‘compliance critical systems’ project underway to help our sites identify what systems are critical and ensure suitable meas- ures for reliability. Description Changes in the world’s climate constitute both a risk and an opportunity for us. In October, the International Energy Agency (IEA) launched their World Energy Outlook report, which supports the Intergovernmental Panel on Climate Change (IPCC) conclusion that it is unequivocal that human activity causes global warming, and that we are on course to reach the critical point of 1.5 °C of warming already in the early 2030s. IEA now puts us on a path towards 1.7 °C. Potential impact Failure to adhere to the 1.5 °C limit may cause severe changes in the worlds’ climate and make catastrophic events more severe and frequent. This could not only have an adverse effect on our planet, but on our operating assets as well. Mitigating actions In accordance with the recommendations set out by the Task Force on Climate-related Financial Disclosures (TCFD), we seek to exploit climate-related opportunities and be a part of the solution through development and genera- tion of renewable energy. At the same time, we seek to reduce the risks related to climate change by encouraging reg- ulators and public authorities to set ambitious renewable energy targets, improving the com- petitiveness of green technologies, assessing acute and chronic weather development, and taking extreme weather conditions and events into account when designing and building our assets. Furthermore, we take climate-related risks and opportunities into account when we prepare business cases for investment in new assets or activities. By doing this, we seek to avoid ending up with stranded assets or assets and activities with a significantly lower value than originally expected. Ørsted annual report 2022 Management’s review Results 43 Follow-up on 2022 guidance 44 Results 48 Five-year summary 49 Fourth quarter 54 Quarterly summary, 2021-2022 42 Ørsted’s pre-commencement community fund in Choczewo in Poland supports local sustainable development projects in the area from 2022 to 2024. The fund will focus on social development, safety, local meeting places, cultural and natural heritage, and children and youth and will be allocated in close collabora- tion with local communities. Ørsted annual report 2022 Management’s review Results | Follow-up on 2022 guidance Follow-up on 2022 guidance EBITDA excluding new partnerships DKKbn Full-year EBITDA Operating profit (EBITDA) excluding new partnerships totalled DKK 21.1 billion com- pared to our expectations at the beginning of the year of DKK 19-21 billion. Earnings from our CHP plants increased due to the higher power prices. As we only hedge the power we cogenerate with heat, we benefitted from the high prices on our condensing power generation. The further increase in the level and volatility of energy prices throughout most of the year, together with a substantial increase in infla- tion, led to a significantly different composi- tion of EBITDA than our initial expectations. In ‘Gas Markets & Infrastructure’, we achieved higher earnings from our gas storage activi- ties and release of a provision related to the close-down of our B2B business in the UK. Earnings in Offshore ended up lower than expected, mainly due to volume-related overhedging (DKK 2.9 billion), ineffective hedges related to inflation indexation (DKK 0.7 billion), and other IFRS 9-related ineffective hedges (DKK 1.6 billion). We also saw higher balancing costs and BSUoS/ TNUoS tariffs than expected. Further delays in the installation process and with the com- missioning of turbines at Greater Changhua 1 & 2a resulted in lower ramp-up generation and lower partnership earnings. This was partly offset by a lower-than-expected DEVEX and positive effects from reversal of provisions incl. CPS issues. Earnings in Onshore ended up significantly higher due to higher achieved prices in both the US and Europe. Furthermore, the acquisi- tions of Ostwind and Ford Ridge contributed positively. Q4 EBITDA Neither the development in nor the composi- tion of our earnings mix were as expected in our 9M report. In Offshore, we had to recognise a nega- tive effect from ineffectiveness related to inflation-indexed contracts with partners, a reduction in the value of intermittency hedges (part of volume-ineffective hedges), and we saw higher balancing costs. In addi- tion, the delays at Greater Changhua 1 & 2a had a negative impact. In Bioenergy & Other, we realised signifi- cantly higher-than-expected earnings from our gas storage activities and released a provision related to our B2B business. This was partly offset by lower earnings from our CHP plants due to lower-than-expected power prices. 43 2021 Wind impact 2021 Sites, other Existing partnerships Other, incl. DEVEX Sites and tax credits Other, incl. DEVEX CHP plants Gas markets Other Expected 2022 Wind impact Hedges Ramp-up Sites, other 15.8 2.0 2.3 1.7 Offshore 1.4 Onshore Bio & Other -0.5 -0.3 -0.6 -1.6 -0.2 -0.2 20 -5.2 -1.5 -0.5 Offshore Greater Changhua 1 CA -0.6 Other existing partnerships Other, incl. DEVEX Onshore CHP plants Gas markets Other 2022 1.1 0.6 1.2 3.2 Bio & Other 2.8 0.2 21.1 Ørsted annual report 2022 Management’s review Results | Results Results Financial results Revenue Power generation from offshore and onshore assets increased by 34 % and totalled 29.6 TWh in 2022. The increase was due to ramp-up of generation from Hornsea 2, Western Trail, Haystack, Lincoln Land, Old 300, the wind part of Helena Energy Center, the acquisition of Ford Ridge, the full-year effects from I&UK assets acquired during 2021, and higher wind speeds, partly offset by the 50 % farm-down of Borssele 1 & 2 in May 2021. Heat generation amounted to 6.4 TWh, 19 % lower than last year, mainly due to warmer weather. Thermal power genera- tion decreased by 13 % and amounted to 6.0 TWh. Lower CHP generation (warmer weather) was partly offset by higher condensing power generation. Our renewable share of generation was 91 % in 2022, 1 percentage point higher than last year, driven by a higher share of generation from offshore and onshore renewables, partly offset by higher CHP generation on coal due to scarcity of sus- tainable biomass and as we had to switch to coal at Studstrup 3. Revenue amounted to DKK 132.3 billion. The increase of 70 % relative to 2021 was primarily due to the significantly higher power prices across all markets. EBITDA Operating profit (EBITDA) totalled DKK 32.1 billion, of which the gain from the 50 % farm-downs of Hornsea 2 and Borkum Riffgrund 3 amounted to DKK 9.4 billion and DKK 1.6 billion, respectively. Thus, EBITDA excluding new partnerships amounted to DKK 21.1 billion, an increase of DKK 5.3 billion compared to last year. Earnings from Offshore sites amounted to DKK 9.9 billion, a decrease of DKK 3.1 billion compared to last year. ‘Wind impact’ was positive with DKK 1.7 billion due to higher wind speeds than last year (DKK -0.2 billion versus a normal wind year). Impact from ‘hedges’ was negative with DKK 3.7 billion in 2022 compared to last year (2022 was negatively impacted by DKK 5.6 billion, whereas 2021 was negatively impacted by DKK 1.9 billion). This was due to ineffectiveness related to inflation-based contracts with partners Financial results DKKm Revenue EBITDA New partnerships EBITDA excl. new partnerships Depreciation and amortisation Impairment Operating profit (loss) (EBIT) Gain (loss) on divestment of enterprises Financial items, net Profit before tax Tax on profit (loss) for the year Tax rate Profit (loss) for the year EBITDA excluding new partnerships DKKbn 2022 132,277 32,057 10,993 21,064 (9,754) (2,529) 19,774 331 (2,536) 17,609 (2,613) 15 % 14,996 2021 77,673 24,296 8,507 15,789 (7,972) (129) 16,195 (742) (2,166) 13,277 (2,390) 18 % 10,887 % 70 % 32 % 29 % 33 % 22 % 1,860 % 22 % n.a. 17 % 33 % 9 % (3 %p) 38 % Offshore Onshore Bio & Other 1.2 0.0 21.1 2.7 1.31 22.4 1.7 15.8 2.7 2.3 -0.4 -0.1 -3.7 -1.2 2021 Wind Hedges Sites, other Existing partner- ships Other, incl. DEVEX Sites Other, incl. DEVEX CHPs Gas & other Other 2022 Temp. IFRS 9 adj. 2022 excl. temp. IFRS 9 adj. 44 1 Absolute effect from IFRS 9 hedge effects Ørsted annual report 2022 Management’s review Results | Results EBITDA DKK 32.1 bn Offshore 62 % Onshore 11 % Bioenergy & Other 27 % EBITDA in Onshore increased by DKK 2.3 billion to DKK 3.6 billion, driven by ramp-up of generation and higher achieved prices across the portfolio. Wind project in the US, driven by supply chain bottlenecks, cost inflation, and higher costs of capital. EBITDA DKKbn 2022 2021 New partnerships 32.1 24.3 In 2022, regulated and quasi-regulated activities and contracted activities accounted for 45 % and 49 % of our EBITDA, respectively, whereas market- exposed activities accounted for 6 %. (DKK 0.7 billion), negative effects from volume-related overhedging (DKK 2.6 billion), and IFRS 9-related ineffective hedges (DKK 0.4 billion). Earnings from ‘Sites, other’ decreased with DKK 1.2 billion, mainly due to a negative impact from high prices and volatility (bal- ancing costs), from expanding our portfolio (higher OPEX, BSUoS, and TNUoS tariffs), and from the 50 % farm-down of Borssele. This was partly offset by ramp-up of gener- ation at Hornsea 2, higher achieved prices from one-sided German CfD sites, and from value-creating market trading activities. EBITDA from partnerships amounted to DKK 12.3 billion and was mainly related to the DKK 9.4 billion and DKK 1.6 billion gains from the 50 % farm-downs of Hornsea 2 and Borkum Riffgrund 3 (new partnerships), respectively. Earnings from existing partnerships amount- ed to DKK 1.3 billion compared to a loss of DKK 1.0 billion in 2021. In 2022, we had positive earnings from finalised projects and construction work for partners at Greater Changhua 1. In addition, we reversed DKK 0.5 billion of the DKK 0.8 billion warranty pro- vision towards our partners we recognised in 2021 related to cable protection system issues at some of our offshore wind farms. 45 EBITDA from our CHP plants amounted to DKK 5.9 billion, an increase of DKK 2.6 billion compared to last year. The increase was mainly due to higher power prices. As we in- itially only hedge the power we cogenerate with heat, we have been able to benefit from the high power prices on our condensing power generation. EBITDA from our gas business contributed with earnings of DKK 3.1 billion in 2022, DKK 1.3 billion higher than last year, with some offsetting effects. We saw a positive effect from optimising our north-western European gas activities, where we were able to lock in gains from the offtake flexibility in some of our sourcing contracts and at gas storages. In addition, we had a positive effect from our B2B activities in the UK, where we released part of the provision for closing down the business. In contrast, our decision during the spring to unwind gas hedges related to the Gazprom Export contract to balance our risk, if gas supplies from Russia were ceased, led to a net loss on the Gazprom Export sourcing contract in the first half of the year. Furthermore, 2021 was positively impacted by renegotiation of gas purchase contracts and earnings from optimising pur- chase via our long-term gas contracts. Impairment Impairment losses amounted to DKK 2.5 billion in 2022 and was related to our Sunrise EBIT EBIT increased by DKK 3.6 billion to DKK 19.8 billion in 2022. The higher EBITDA was partly offset by impairment losses and higher de- preciation from more assets in operation. Financial income and expenses Net financial income and expenses amount- ed to DKK -2.5 billion compared to DKK -2.2 billion in 2021. The higher net expenses were mainly due to higher interest expenses and capital losses on the bond portfolio (net of related interest rate swaps) due to increasing interest rates and higher agreed returns on tax equity contributions due to more onshore assets in operation, only partly offset by positive exchange rate adjustments. Tax and tax rate Tax on profit for the period amounted to DKK 2.6 billion, DKK 0.2 higher than 2021. The effective tax rate was 15 % and was im- pacted by the tax-exempt gains of DKK 10.9 billion from the 50 % farm-downs of Hornsea 2 and Borkum Riffgrund 3, the recognition of deferred taxes related to tax equity contribu- tions in the US, and by prior year adjustments. Profit for the year Profit for the year totalled DKK 15.0 billion, DKK 4.1 billion higher than in 2021. The in- crease was mainly due to the higher EBIT. Ørsted annual report 2022 Management’s review Results | Results Cash flows and net debt Cash flows from operating activities Cash flows from operating activities totalled DKK 11.9 billion in 2022 compared to DKK 12.1 billion in 2021. During 2022, we tied up additional DKK 6.9 billion, net, in variation margin payments on unrealised hedges (part of ‘Change in derivatives’) and initial margin payments at clearing houses (part of ‘Change in other working capital’) due to the increasing and volatile power and gas prices: – – – The variation margin payments were a cash outflow of DKK 10.4 billion vs. a cash inflow of 0.6 billion in 2021. DKK 2.0 billion of the outflow in 2022 related to power hedges in Offshore, and DKK 8.4 billion related to gas hedges in Bioenergy & Other. The initial margin payments were a cash inflow of DKK 3.5 billion vs a cash outflow of DKK 7.3 billion in 2021. During the second quarter, we issued parent company guarantees in total of EUR 1 billion, which reduced our initial margin payments. The negative impact from variation margin payments included in ‘Change in derivatives’ was partly offset by the reversal of unrealised market trading results and ineffective hedges. partly offset by construction work at Greater Changhua 1. In 2021, we had a net cash inflow of DKK 4.5 billion, mainly from the divest- ment of the Hornsea 1 offshore transmission asset and milestone payments received at Greater Changhua 1, only partly offset by construction work regarding the offshore transmission asset at Hornsea 2. In 2022, cash inflows from tax equity contri- butions were more than offset by tax equity reversals, whereas we had a large inflow of tax equity contributions in 2021. Furthermore, the positive effect in ‘Change in other working capital’ from lower initial margins was partly offset by higher fuel inventories and lower payables. Investments and divestments Gross investments amounted to DKK 37.4 billion in 2022. The main investments were: – – offshore wind farms (DKK 26.7 billion), including Greater Changhua 1 & 2a in Taiwan, Hornsea 2 in the UK, and our portfolio of US and German projects onshore wind and solar PV farms (DKK 10.4 billion), including the acquisitions of Ostwind and Ford Ridge as well as the construction of Old 300, Sunflower Wind, Helena Energy Center, Eleven Mile, and our portfolio of European projects. In 2022, we had a net cash inflow from work in progress of DKK 4.3 billion, mainly from the farm-down of 50 % of the offshore trans- mission asset at Hornsea 2 and milestone payments received at Borkum Riffgrund 3, Divestments amounted to DKK 25.6 billion in 2022 and were mainly related to the 50 % farm-downs of Hornsea 2 and Borkum Riffgrund 3 with proceeds (NIBD impact) of DKK 22.2 billion and DKK 1.9 billion, 46 Cash flows and net debt DKKm Cash flows from operating activities EBITDA Reversal of gain (loss) on divestment of assets Change in derivatives, excl. variation margin Change in variation margin Change in provisions Other items Interest expense, net Paid tax Change in work in progress Change in tax equity partner liabilities Change in other working capital Gross investments Divestments Free cash flow Net debt at 1 January Free cash flow Dividends and hybrid coupons paid Addition of leasing obligations Issuance of leasing hybrid capital, net Exchange rate adjustments, etc. Net debt at 31 December 2022 11,924 32,057 (10,885) 1,645 (10,332) (1,935) (278) (563) (1,263) 4,271 (353) (440) (37,447) 25,636 113 24,280 (113) 6,052 1,598 (1,747) 501 30,571 2021 12,148 24,296 (7,920) (2,678) 627 (158) (262) (467) (1,380) 4,466 3,678 (8,054) (39,307) 21,519 (5,640) 12,343 5,640 5,581 2,742 (4,356) 2,330 24,280 % (2 %) 32 % 37 % n.a. n.a. 1125 % 6 % 21 % (8 %) (4 %) n.a. (95 %) (5 %) 19 % n.a. 97 % n.a. 8 % (42 %) (60 %) (78 %) 26 % Gain (loss) on sale of assets is part of EBITDA, but is presented as part of the ‘divestment’ cash flow. The EBITDA effect is thus reversed in the specification of cash flows from operating activities. Key ratios DKKm, % ROCE Adjusted net debt FFO/adjusted net debt 2022 16.8 42,075 42.7 2021 14.8 39,774 26.3 % 2 %p 6 % 16 %p ROCE and FFO/adjusted net debt is specified in notes 2 and 5.1 Ørsted annual report 2022 Taxonomy-aligned KPIs The taxonomy-aligned share of revenue was 73 %, EBITDA was 85 %, gross investments was 99 %, and OPEX was 80 % in 2022. The non-eligible part of our revenue primarily concerned our long-term legacy activities related to sourcing and sale of gas (16 % of revenue in 2022), coal-based generation, and non-eligible power sales. We expect the share of taxonomy-aligned revenue to increase in the coming years. Read more about our EU taxonomy- aligned KPIs in notes 2.1-2.5 in the ESG performance report for 2022. See our full EU taxonomy reporting in our ESG performance report: orsted.com/ESGperformance2022. Management’s review Results | Results respectively, and payments from our 25 % partner in Ocean Wind 1. In 2021, divestments amounted to DKK 21.5 billion and were mainly related to the 50 % farm-downs of Borssele 1 & 2 and Greater Changhua 1. In addition, we completed the divestment of a portfolio of four onshore projects in 2022, with no impact on EBITDA, divestments cash flow, or NIBD. Interest-bearing net debt Interest-bearing net debt totalled DKK 30.6 billion at the end of December 2022 against DKK 24.3 billion at the end of 2021. The increase was mainly due to dividend payments of DKK 5.7 billion and higher net lease obligations of DKK 1.6 billion, partly offset by net issuance of hybrid capital in 2022. Free cash flow was positive with DKK 0.1 billion. At the end of 2022, we had posted DKK 14.0 billion as collateral at exchanges. Equity and capital employed Equity Equity was DKK 95.5 billion at the end of December 2022 against DKK 85.1 billion at the end of 2021. At the end of 2022, the post- tax hedging and currency translation reserve amounted to a loss of DKK 26.5 billion. The reserve will be matched by higher future revenue from the underlying activities when the contracts fall into delivery. Approx. 30 % of the reserve will materialise before 31 December 2023. Capital employed Capital employed was DKK 126.1 billion at the end of December 2022 against DKK 109.4 billion at the end of 2021, mainly due to new investments. was driven by more wind and solar assets in operation and higher wind speeds, partially offset by higher coal-based generation and lower sustainable biomass-based generation. Financial ratios Return on capital employed (ROCE) Return on capital employed (ROCE) was 16.8 % in 2022. The increase of 2.0 percentage points compared to last year was attributa- ble to a higher EBIT. Credit metric (FFO/adjusted net debt) The funds from operations (FFO)/adjusted net debt credit metric was 42.7 % in 2022 against 26.3 % last year. The increase was mainly due to higher FFO. During the year, we updated the definition of our FFO/adjusted net debt ratio. We have excluded variation margin payments in our FFO definition to reflect the changes imple- mented by the rating agencies. Furthermore, we have excluded ‘other interest-bearing debt’ and ‘other interest-bearing receivables’ from our adjusted net debt to align with the common methodology used by the rating agencies. We have restated comparison numbers for 2022 and 2021 accordingly. See note 5.1 for definitions. ESG results Green share of heat and power generation The green share of heat and power genera- tion amounted to 91 % in 2022 compared to 90 % in 2021. The 1 percentage point increase Greenhouse gas emissions Our greenhouse gas emissions from heat and power generation (scope 1 and 2) increased by 17 % compared to 2021 to 2.5 million tonnes CO2e due to increased use of coal in our thermal heat and power generation due to scarcity of supply of biomass in the first part of the year and a switch from biomass to coal at Studstrup 3 due to a fire in a wood pellet silo. Greenhouse gas intensity from our heat and power generation and other operating activities increased to 60 g CO2e/kWh in 2022 against 58 g CO2e/kWh in 2021. The increase was driven by the increased use of coal in the thermal heat and power generation, partly offset by higher wind and solar generation. Greenhouse gas emissions from our supply chain and sales activities (scope 3) decreased by 40 % to 11.0 million tonnes in 2022. This was primarily due to a 48 % decrease in gas sales and a 10 % reduction in emissions from commissioning of renewable assets. Safety In 2022, we had 78 total recordable inju- ries (TRIs), of which 52 injuries were related to contractors’ employees. This was an increase of 4 injuries compared to last year. The number of hours worked was 24.8 million hours, same as in 2021. The total recordable injury rate (TRIR) increased from 3.0 in 2021 to 3.1 in 2022. 47 Ørsted annual report 2022 Management’s review Results | Five-year summary Five-year summary Financial statements DKKm Income statement Revenue EBITDA Offshore Sites, O&M, and PPAs Construction agreements and divestment gains Other, incl. project development Onshore Bioenergy & Other Other activities Depreciation and amortisation Impairment Operating profit (loss) (EBIT) Gain (loss) on divestment of enterprises Net financial income and expenses Profit (loss) before tax Tax Profit (loss) for the year Balance sheet Assets Equity Shareholders in Ørsted A/S Non-controlling interests Hybrid capital Interest-bearing net debt Capital employed Additions to property, plant, and equipment Cash flows Cash flows from operating activities Gross investments Divestments Free cash flow Financial ratios Return on capital employed (ROCE), % FFO/adjusted net debt, % Number of outstanding shares, 31 December, ’000 Share price, 31 December, DKK Market capitalisation, 31 December, DKKbn Earnings per share (EPS), DKK Dividend yield, % 48 2022 2021 2020 2019 2018 Business drivers 2022 2021 2020 2019 2018 132,277 32,057 19,569 9,940 12,277 (2,648) 3,644 8,619 225 (9,754) (2,529) 19,774 331 (2,536) 17,609 (2,613) 14,996 314,142 95,532 71,743 3,996 19,793 30,571 126,103 33,662 11,924 (37,447) 25,636 113 16.8 42.7 420,209 631 265 34.6 2.1 77,673 24,296 18,021 13,059 7,535 (2,573) 1,349 4,747 179 (7,972) (129) 16,195 (742) (2,166) 13,277 (2,390) 10,887 270,385 85,137 64,072 3,081 17,984 24,280 109,416 43,941 12,148 (39,307) 21,519 (5,640) 14.8 26.3 420,175 835 351 24.3 1.5 50,151 16,598 14,451 15,177 1,593 (2,319) 1,112 824 210 (7,588) - 9,010 10,831 (2,524) 17,324 (1,776) 15,537 196,719 97,329 81,376 2,721 13,232 12,343 109,672 28,442 16,466 (26,967) 19,039 8,538 8.3 65.0 420,068 1,244 522 38.8 0.9 70,398 19,020 14,503 13,092 3,765 (2,354) 801 3,551 166 (6,864) (568) 11,588 (63) (1,135) 10,392 (3,101) 7,235 192,860 89,562 73,082 3,248 13,232 17,230 106,792 22,440 13,079 (23,305) 3,329 (6,897) 12.2 31.0 419,985 689 290 12.8 1.5 75,520 28,491 26,305 9,538 18,765 (1,998) 509 1,603 74 (5,978) 603 23,116 127 (1,278) 21,966 (3,700) 18,276 174,575 85,115 68,488 3,388 13,239 (2,219) 82,896 14,436 10,343 (24,481) 19,950 5,812 30.2 69.0 420,045 436 183 45.3 2.2 Offshore Decided and installed capacity, GW Installed capacity, GW Generation capacity, GW Wind speed, m/s Load factor, % Availability, % Power generation, GWh Power sales, GWh Onshore Decided and installed capacity, GW Installed capacity, GW Wind speed¹, m/s Load factor¹, wind, % Load factor¹, solar PV, % Availability¹, wind, % Availability¹, solar PV, % Power generation, GWh Bioenergy & Other Degree days, number Heat generation, GWh Power generation, GWh Power sales, GWh Gas sales, GWh ESG statements Employees (FTE), end of year, number Total recordable injury rate (TRIR) Fatalities, number Green share of heat and power generation, % GHG emission (scope 1 & 2), Mtonnes GHG intensity (scope 1 & 2), g CO2e/kWh GHG emissions (scope 3), Mtonnes 11.1 8.9 4.7 9.5 42 94 16,483 33,745 6.2 4.2 7.4 40 25 93 98 13,146 2,548 6,368 6,012 5,399 31,637 8,027 3.1 - 91 2.5 60 11.0 10.9 7.6 4.0 9.1 39 94 13,808 25,020 4.7 3.4 7.4 42 24 96 96 8,352 2,820 7,907 6,890 8,797 61,349 6,836 3.0 - 90 2.1 58 18.2 9.9 7.6 4.4 10.0 45 94 15,248 29,152 3.4 1.7 7.6 45 - 96 - 5,738 2,432 6,671 4,438 11,623 90,347 6,179 3.6 - 90 1.9 58 25.3 9.9 6.8 3.6 9.2 42 93 11,965 27,615 2.1 1.0 7.3 45 - 98 - 3,513 9.0 5.6 3.0 9.1 42 93 10,042 27,434 1.0 0.8 7.3 41 - - - 552 2,399 8,312 4,640 14,700 124,951 2,526 8,768 6,652 15,296 131,144 6,526 4.9 1 86 1.9 65 34.6 6,080 4.7 - 75 3.5 131 36.2 1 For 2021-2018, these business drivers are for US only. Whereas they are for the whole portfolio from 2022. Ørsted annual report 2022 Management’s review Results | Fourth quarter Fourth quarter Financial performance – Group EBITDA Operating profit (EBITDA) totalled DKK 6.7 billion compared to DKK 8.3 billion in Q4 2021. In Q4 2021, we completed the 50 % farm-down of Greater Changhua 1 with a gain of DKK 3.2 billion. Adjusted for new partnerships, EBITDA increased by DKK 1.6 billion compared to the same period in 2021. Earnings from offshore sites were DKK 0.2 billion lower than the same period last year and amounted to DKK 3.7 billion. ‘Wind impact’ was positive with DKK 0.2 billion due to higher wind speeds than last year. Impact from ‘Hedges’ was negative with DKK 0.7 billion in Q4 2022 compared to Q4 2021 (Q4 2022 was negatively impacted by DKK 1.7 billion, whereas Q4 2021 was negatively impacted by DKK 1.0 billion). This was due to ineffectiveness related to inflation-indexed contracts with partners (DKK 0.7 billion) and negative effects from volume-related overhedging due to a reduction in the value of intermittency hedges, only partly offset by lower under- lying overhedging Q-Q (DKK 0.3 billion). This was partly offset by a net positive change in IFRS 9-related ineffective hedges (DKK 0.3 billion). Earnings from ‘Sites, other’ increased by DKK 0.2 billion, mainly due to ramp-up generation at Hornsea 2 and gains from value-creating market trading activities, partly offset by negative effects from high ROC recycle settlements in Q4 2021 not repeated in 2022, high prices and volatility (higher balancing costs), and from expand- ing our portfolio (higher OPEX, and BSUoS tariffs). Earnings from existing partnerships were DKK 0.1 billion lower than the same period last year and amounted to DKK -0.8 billion. Due to further delay with commissioning of the turbines at Greater Changhua 1, total costs for the project have increased and consequently reduced earnings under the construction agreement. EBITDA from our Onshore business in- creased by DKK 0.3 billion to DKK 0.9 billion, driven by ramp-up of generation and higher achieved prices across the portfolio. EBITDA from our CHP plants stayed at the same level as Q4 2021 and amounted to DKK 1.7 billion. Earnings from our gas business were DKK 2.1 billion, a DKK 1.3 billion increase compared to the same period last year, mainly driven by a positive effect from our Financial performance DKKm Revenue EBITDA New partnerships EBITDA excl. new partnerships Impairment loss Operating profit (loss) (EBIT) Profit (loss) before tax Tax Tax rate Profit (loss) for the period Q4 2022 Q4 2021 35,679 6,696 77 6,619 (2,529) 1,375 460 (789) 172 % (329) 30,666 8,253 3,211 5,042 (129) 5,980 4,361 (1,103) 25 % 3,258 % 16 % (19 %) (98 %) 31 % n.a. (77 %) (89 %) (28 %) 147 %p n.a. EBITDA excluding new partnerships DKKbn Offshore Onshore Bio & Other 0.1 6.6 6.3 1.2 -0.31 0.2 5.0 0.4 0.0 0.3 -0.1 0.2 -0.7 -0.1 Q4 2021 Wind Hedges Sites, other Existing partner- ships Other, incl. DEVEX Sites Other, incl. DEVEX CHP plants Gas & other Other Q4 2022 Temp. IFRS 9 adj. Q4 2022 excl. temp. IFRS 9 adj. 49 1 Absolute effect from IFRS 9 hedge effects in Q4 2022 Ørsted annual report 2022 Management’s review Results | Fourth quarter Cash flows and net debt DKKm Cash flows from operating activities EBITDA Reversal of gain (loss) on divestment of assets Change in derivatives, excl. variation margin Variation margin Change in provisions Other items Interest expenses, net Paid tax Change in work in progress Change in tax equity partner liabilities Change in other working capital Gross investments Divestments Free cash flow Net debt, beginning of period Free cash flow Dividends and hybrid coupon paid Addition to lease obligations Issuance of hybrid capital, net Exchange rate adjustments, etc. Net debt, end of period 50 Q4 2022 Q4 2021 20,915 6,696 57 (6,543) 8,658 (668) (98) (54) (28) 1,830 251 10,814 (9,826) 983 12,072 45,701 (12,072) 228 582 (1,747) (2,121) 30,571 668 8,253 (2,294) (3,912) 1,850 112 (209) 130 (26) 1,322 1,018 (5,576) (11,752) 10,952 (132) 21,211 132 212 2,092 - 633 24,280 % n.a. (19 %) n.a. 67 % 368 % n.a. (53 %) n.a. 8 % 38 % (75 %) n.a. (16 %) (91 %) n.a. 115 % n.a. 8 % (72 %) n.a. n.a. 26 % gas storage activities and release of a pro- vision related to the close-down of our B2B business in the UK. This was partly offset by lower volumes sold in 2022 and strong earnings from optimising purchase from our long-term gas contracts in 2021. – – The variation margin payments were a cash inflow of DKK 8.7 billion vs. a cash inflow of DKK 1.9 billion in Q4 2021. The initial margin payments were a cash inflow of DKK 8.7 billion in Q4 2022 vs. a cash outflow of DKK 4.8 billion in Q4 2021. Impairment losses Impairment losses amounted to DKK 2.5 billion in Q4 2022 and was related to our Sunrise Wind project in the US. Supply chain bottlenecks, cost inflation, and higher costs of capital led to an impairment. Profit for the period Profit for the period totalled DKK -0.3 billion, DKK 3.6 billion lower than Q4 2021. The decrease was primarily due to the gain from the 50 % farm-down of Greater Changhua 1 in Q4 2021 and from the impairment loss in Q4 2022. Cash flows from operating activities Cash flows from operating activities totalled DKK 20.9 billion in Q4 2022 compared to DKK 0.7 billion in Q4 2021. The increase of DKK 20.2 billion was mainly due to a release of collateral tied up at clearing houses. During Q4 2022, we released DKK 17.4 billion, net, in variation margin payments on unrealised hedges (part of ‘Change in derivatives’) and initial margin payments at clearing houses (part of ‘Change in other working capital’) due to the sharp decrease in power and gas prices at the end of the quarter, whereas we tied up an additional DKK 2.9 billion in Q4 2021: The positive impact from variation margin payments included in ‘Change in derivatives’ was partly offset by reversal of unrealised market trading results and ineffective hedges. In Q4 2022, we had tax equity contribution from Old 300, whereas we received tax equity contributions from Lincoln Land in Q4 2021. In Q4 2022, we had a net cash inflow from work in progress of DKK 1.8 billion, mainly due to milestone payments received at Borkum Riffgrund 3 and construction work related to Greater Changhua 1. In Q4 2021, we had a net cash inflow of DKK 1.3 billion, mainly due to milestone payments at Greater Changhua 1. Investments and divestments Gross investments amounted to DKK 9.8 billion in Q4 2021 and related to the con- struction of offshore and onshore assets. Divestments amounted to DKK 1.0 billion and mainly related to payments from our 25 % partner in Ocean Wind 1. Ørsted annual report 2022 Management’s review Results | Fourth quarter Offshore Financial results Q4 2022 Power generation increased by 22 % to 5.4 TWh in Q4 2022. The increase was due to ramp-up at Hornsea 2 and slightly higher wind speeds. Wind speeds amounted to a portfolio average of 10.7 m/s, which was higher than in Q4 2021 (10.6 m/s), but below the normal wind speeds expected in the fourth quarter (11.0 m/s). Availability ended at 95 %, in line with the same period last year. Revenue increased by 28 % to DKK 24.9 billion. Revenue from offshore wind farms in operation increased by 80 % to DKK 10.8 billion, mainly driven by higher generation and higher PPA revenue following our 50 % farm-down of Hornsea 2. The Hornsea 2 PPA will run until CfD start. Revenue from power sales increased by 7 % to DKK 13.2 billion due to an increase in power sales, partly offset by lower power prices. EBITDA decreased by DKK 3.2 billion and amounted to DKK 2.1 billion. EBITDA from ‘Sites, O&M, and PPAs’ amount- ed to DKK 3.7 billion in Q4 2022. Despite a positive impact from ramp-up of generation at Hornsea 2, value-creating market trading 51 activities, net-positive changes in IFRS 9- related ineffective hedges (DKK 0.3 billion), and higher wind speeds than last year (DKK 0.2 billion), earnings decreased by DKK 0.2 billion. This was primarily due to ineffective- ness related to inflation-indexed contracts with partners (DKK 0.7 billion) and negative effects from volume-related overhedging due to a reduction in the value of intermit- tency hedges, only partly offset by lower un- derlying overhedging Q-Q (DKK 0.3 billion). Furthermore, we saw negative effects from high ROC recycle settlements in Q4 2021 not repeated in 2022, from generally high prices and volatility (balancing costs), and from expanding our portfolio (higher OPEX, BSUoS, and TNUoS tariffs). EBITDA from partnerships amounted to DKK -0.7 billion in Q4 2022 and mainly related to the construction of Greater Changhua 1. Due to further delay with commissioning of the turbines, total costs for the project have increased and consequently reduced earnings under the construction agreement. In Q4 2021, EBITDA from partnerships mostly related to the 50 % farm-down of Greater Changhua 1 with a gain of DKK 3.6 billion. EBITDA from other activities, including project development, amounted to DKK -0.9 billion, DKK 0.3 billion less than in Q4 2021, and was mainly related to lower expensed project development costs. Results Business drivers Decided (FID'ed) and installed capacity, GW Installed capacity, GW Generation capacity, GW Wind speed, m/s Load factor, % Availability, % Power generation, GWh Denmark The United Kingdom Germany The Netherlands Other Power sales, GWh Power price, LEBA UK British pound Financial performance, DKKm Revenue Sites, O&M, and PPAs Power sales Construction agreements Other EBITDA Sites, O&M, and PPAs Construction agreements and divestment gains Other, incl. project development Depreciation Impairment EBIT Cash flow from operating activities Gross investments Divestments Free cash flow Capital employed Q4 2022 Q4 2021 % 2022 2021 % 11.1 8.9 4.7 10.7 54 95 5,411 634 3,631 626 401 119 10.9 7.6 4.0 10.6 53 95 4,452 611 2,757 680 383 1 % 17 % 17 % 1 % 1 %p 0 %p 22 % 4 % 32 % (8 %) 5 % 21 484 % 11.1 10.9 8.9 4.7 9.5 42 94 7.6 4.0 9.1 39 94 16,483 13,808 2,084 10,989 1,949 1,259 202 1,918 7,880 2,022 1,904 84 11,563 8,791 32 % 33,745 25,020 210 8.6 261 8.8 (20 %) (2 %) 252 8.7 147 8.6 24,922 10,767 13,209 916 30 2,094 3,746 (715) (937) (1,994) (2,529) (2,429) 17,728 (7,926) 19,410 5,988 12,388 905 129 28 % 80 % 7 % 1 % (77 %) 87,121 23,349 52,001 11,640 131 5,244 (60 %) 19,569 3,983 2,469 (6 %) n.a. (1,208) (22 %) (1,519) 31 % (69) 3565 % 9,940 12,277 (2,648) (7,006) (2,529) 50,791 18,432 25,905 6,044 410 (68 %) 18,021 13,059 7,535 (2,573) (5,993) 9 % (24 %) 63 % 3 % 17 % (69) 3,565 % 3,656 (1,761) (7,015) n.a. n.a. 5,272 (898) 13 % (26,710) (23,416) 10,034 11,959 (16 %) 1,034 10,910 (91 %) 25,451 10,836 89,941 2,134 408 % 4,013 85,814 5 % 89,941 21,595 (2,719) 85,814 1 % 17 % 17 % 4 % 3 %p (0 %p) 19 % 9 % 39 % (4 %) (34 %) 142 % 35 % 71 % 1 % 72 % 27 % 101 % 93 % n.a. 14 % 18 % n.a. 5 % Ørsted annual report 2022 Management’s review Results | Fourth quarter Onshore Financial results Q4 2022 Power generation from our operating onshore assets increased by 22 % compared to Q4 2021 and amounted to 3.4 TWh. The increase was due to the commissioning of Haystack, Ford Ridge, the wind part of Helena Energy Center, and ramp-up of generation at Old 300. In Q4 2022, the wind speeds across the portfolio were 7.7 m/s, which were higher than last year (7.5 m/s for the entire portfolio) and 1 % higher than a normal wind year. Availability for wind farms was lower during the quarter due to minor technical issues, mainly at Willow Springs. Revenue was up by DKK 0.3 billion compared to Q4 2021 and amounted to DKK 0.7 billion. The increase was mainly due to increased power generation as a result of the newly commissioned assets and higher achieved prices across the portfolio. In the US, we benefitted from the higher power prices during the ramp-up phases of assets under construction, where PPAs do not start until COD. Furthermore, some of our PPAs have upside share structures that allow for capture of additional revenue in periods of high pricing compared to tradi- tional PPAs. 52 EBITDA for Q4 2022 amounted to DKK 0.9 billion, DKK 0.3 billion higher than in the same period last year. The increase was due to higher generation and higher prices across the portfolio. This was partly offset by higher fixed costs due to the expansion of the business and project development. Results Business drivers Decided (FID'ed) and installed capacity, GW Installed capacity, GW Wind speed1, m/s Load factor1, wind, % Load factor1, solar PV, % Availability1, wind, % Availability1, solar PV, % Power generation, GWh US wind US solar PV Europe, wind and solar PV US dollar Financial performance, DKKm Revenue EBITDA Sites Production tax credits and tax attributes Other, including project development Depreciation & impairment EBIT Q4 2022 Q4 2021 % 2022 2021 % 6.2 4.2 7.7 40 17 91 99 3,425 2,711 388 326 7.3 758 852 420 712 (280) (448) 404 4.7 3.4 7.9 47 19 96 99 2,818 2,336 272 210 6.5 362 530 211 480 (161) (373) 33 % 25 % (2 %) (7 %p) (2 %p) (5 %p) 0 %p 22 % 16 % 42 % 55 % 12 % 109 % 61 % 99 % 48 % 74 % 20 % 157 157 % 6.2 4.2 7.4 40 25 93 98 13,146 10,389 1,920 837 7.1 3,014 3,644 2,097 2,556 (1,009) (1,644) 2,000 2,509 4.7 3.4 7.4 42 24 96 96 8,352 6,997 1,018 337 6.3 995 1,349 535 1,382 (568) (963) 386 4,467 33 % 25 % 0 % (2 %p) 1 %p (3 %p) 2 %p 57 % 48 % 89 % 148 % 13 % 203 % 170 % 292 % 85 % 78 % 71 % 418 % (44 %) (33 %) n.a. (29 %) 26 % Cash flow from operating activities 1,039 1,591 (35 %) Gross investments Divestments Free cash flow Capital employed (1,856) (4,606) (60 %) (10,396) (15,525) 13 - n.a. 56 - (804) (3,015) (73 %) (7,831) (11,058) 28,463 22,634 26 % 28,463 22,634 1 For 2021, these business drivers are for US only. Whereas they are for the whole portfolio from 2022. Ørsted annual report 2022 Management’s review Results | Fourth quarter Bioenergy & Other Financial results Q4 2022 Heat generation decreased by 16 % in Q4 2022, mainly due to warmer weather. Power generation decreased by 33 %, mainly due to lower CHP generation and less attractive spreads for condensing power generation. Gas sales and power sales decreased by 71 % and 56 %, respectively, due to no vol- umes being delivered under the Gazprom Export sourcing contract and a gradual phase-out of our remaining B2B activities in the UK. Revenue decreased by 23 % compared to Q4 2021 and amounted to DKK 10.3 billion. The decrease was driven by significantly lower gas and power sales, partly offset by higher prices. EBITDA amounted to DKK 3.6 billion compared to DKK 2.4 billion in Q4 2021. EBITDA from ‘CHP plants’ was in line with Q4 2021. The decrease in generation and lower spreads was offset by a positive adjustment on ineffective hedges (DKK 0.2 billion). 53 EBITDA from ‘Gas Markets & Infrastructure’ increased by DKK 1.3 billion relative to the same period last year, amounting to DKK 2.1 billion in Q4 2022. The increase was mainly driven by a positive effect from our gas storage activities and release of a provi- sion related to the close-down of our B2B business in the UK. This was partly offset by lower volumes sold in 2022 and strong earnings from optimising purchase from our long-term gas contracts in 2021. Results Business drivers Degree days Heat generation, GWh Power generation, GWh Gas sales, GWh Power sales, GWh Gas price, TTF, EUR/Mwh Power price, DK, EUR/Mwh Green dark spread, DK, EUR/Mwh Wood pellet spread, DK, EUR/Mwh Financial performance, DKKm Revenue EBITDA CHP plants Gas Markets & Infrastructure Other, incl. project development Depreciation EBIT Cash flow from operating activities Gross investments Divestments Free cash flow Capital employed Q4 2022 Q4 2021 % 2022 2021 % 861 2,064 1,409 4,048 904 94.4 176.2 23.3 (6.2) 927 (7 %) 2,467 (16 %) 2,096 (33 %) 2,548 6,368 6,012 2,820 7,907 6,890 13,744 (71 %) 31,637 61,349 2,072 (56 %) 92.0 147.1 27.0 70.8 3 % 20 % (14 %) n.a. 5,399 120.5 213.7 39.5 54.4 8,797 45.7 87.8 4.8 29.8 10,251 13,252 (23 %) 46,243 32,390 3,609 1,718 2,073 (182) (287) 3,322 738 (25) (4) 709 2,416 1,715 770 (69) (243) 2,173 419 49 % 0 % 169 % 164 % 18 % 53 % 76 % (113) (78 %) 73 379 n.a. 87 % 5,211 1,950 167 % 8,619 5,851 3,117 (349) (859) 7,760 2,622 (267) (4) 2,351 5,211 4,747 3,202 1,829 (284) (831) 3,916 7,593 (274) (178) 7,141 1,950 (10 %) (19 %) (13 %) (48 %) (39 %) 164 % 143 % 732 % 82 % 43 % 82 % 83 % 70 % 23 % 3 % 98 % (65 %) (3 %) (98 %) (67 %) 167 % Ørsted annual report 2022 Management’s review Results | Quarterly summary, 2021-2022 Quarterly summary, 2021–2022 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Business drivers Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 2022 2021 2022 2021 35,679 6,696 2,094 3,746 (715) (937) 852 3,609 141 (2,792) (2,529) 1,375 32 (985) 460 (789) (329) 36,541 12,317 9,652 467 9,765 (580) 867 1,849 (51) (2,530) - 9,787 124 (217) 9,695 (340) 9,355 26,295 3,615 1,904 2,031 601 (728) 1,075 647 (11) (2,304) - 1,311 67 (486) 893 (624) 269 33,762 9,429 5,919 3,698 2,620 (399) 850 2,514 146 (2,128) - 7,301 108 (848) 6,561 (860) 5,701 30,666 8,253 5,244 3,983 14,510 2,984 1,304 1,822 13,553 8,196 7,527 2,368 18,944 4,863 3,946 4,886 2,469 (1,208) 530 2,416 63 (2,143) (129) 5,980 (684) (930) 4,361 (1,103) 3,258 (9) (509) 413 1,206 61 (1,939) - 1,045 (22) (351) 671 (184) 487 5,648 (489) 178 503 (12) (1,959) - 6,237 (72) (466) 5,698 (154) 5,544 (573) (367) 228 622 67 (1,930) - 2,933 36 (419) 2,547 (949) 1,598 314,142 359,758 320,722 285,087 76,719 61,276 53,777 55,704 40,091 32,413 3,031 3,201 3,380 17,984 17,984 17,984 45,701 30,026 41,449 99,478 102,725 106,745 95,532 71,743 3,996 19,793 30,571 126,103 270,385 261,892 223,791 210,972 96,541 75,835 2,722 17,984 13,190 109,416 100,361 108,977 109,731 96,910 75,842 3,084 17,984 12,067 85,137 64,072 3,081 17,984 24,280 79,150 58,129 3,037 17,984 21,211 9,912 9,899 8,724 5,127 17,041 11,477 8,954 6,469 20,915 (9,826) 983 12,072 (11,309) (14,417) 22,459 (3,267) 2,355 (6,372) 267 (3,750) (37) (6,832) 1,927 (4,942) 668 (11,752) 10,952 (132) 246 (8,757) 7 (8,504) 3,147 (12,133) 10,591 1,605 8,087 (6,665) (31) 1,391 16.8 42.7 24.4 35.3 14.8 17.6 19.0 25.0 14.8 26.3 12.9 42.5 12.5 56.9 7.5 51.7 Offshore Decided (FID’ed) and installed capacity, GW Installed capacity, GW Generation capacity, GW Wind speed, m/s Load factor, % Availability, % Power generation, GWh Power sales, GWh Onshore Decided (FID’ed) and installed capacity, GW Installed capacity, GW Wind speed1, m/s Load factor1, wind, % Load factor1, solar PV, % Availability1, wind, % Availability1, solar PV, % Power generation, GWh Bioenergy & Other Degree days, number Heat generation, GWh Power generation, GWh Power sales, GWh Gas sales, GWh 11.1 8.9 4.7 10.7 54 95 5,411 11,563 6.2 4.2 7.7 40 17 91 99 3,425 861 2,064 1,409 904 4,048 11.1 8.9 5.3 7.7 28 91 3,246 5,600 5.1 4.2 6.0 28 32 92 96 2,723 98 239 1,363 1,339 5,706 11.1 7.6 4.8 8.4 35 94 3,324 7,416 4.9 4.0 7.8 47 31 92 99 3,795 448 823 1,102 1,466 8,891 11.1 7.6 4.2 11.3 54 95 4,502 9,166 4.7 3.6 7.9 47 21 96 99 3,203 10.9 7.6 4.0 10.6 53 95 4,452 8,791 4.7 3.4 7.9 47 19 96 99 2,818 9.8 7.6 4.0 7.6 27 93 2,286 4,803 4.7 3.0 6.4 33 27 98 98 1,904 9.8 7.6 4.0 7.8 29 93 2,521 4,541 4.7 2.4 7.3 45 29 97 90 1,983 9.9 7.6 4.4 10.5 50 95 4,549 6,885 4.0 1.7 7.7 45 - 93 - 1,647 1,141 3,243 2,138 1,690 12,993 927 2,467 2,096 2,072 13,744 81 402 1,028 2,271 13,580 487 1,148 1,507 2,167 15,079 1,325 3,890 2,259 2,287 18,945 ESG statements Employees, end of period, number Total recordable injury rate (TRIR) Fatalities, number Green share of heat and power genera- tion, % GHG emissions (scope 1 & 2), Mtonnes GHG intensity (scope 1 & 2), g CO2e/kWh GHG emissions (scope 3), Mtonnes 8,027 3.1 - 7,681 3.3 - 7,292 2.8 - 7,016 1.3 - 6,836 3.0 - 6,672 3.0 - 6,472 3.1 - 6,311 3.0 - 88 0.8 62 1.5 89 0.7 88 3.1 93 0.4 49 2.6 92 0.6 48 3.7 93 0.5 45 3.9 89 0.5 91 4.4 93 0.4 51 4.6 87 0.7 59 5.3 1 For 2021, these business drivers are for US only. Whereas they are for the whole portfolio from 2022. 420,209 420,209 420,209 420,175 849 631 608 742 420,175 420,175 420,175 420,068 1,025 849 835 880 265 1.2 255 22.3 312 0.3 357 13.2 351 7.5 357 1.1 370 12.9 430 2.8 Financial statements DKKm Income statement Revenue EBITDA Offshore Sites, O&M, and PPAs Construction agreements and divestment gains Other, incl. project development Onshore Bioenergy & Other Other activities Depreciation and amortisation Impairment Operating profit (loss) Gain (loss) on divestment of enterprises Net financial income and expenses Profit (loss) before tax Tax Profit (loss) for the period Balance sheet Assets Equity Shareholders in Ørsted A/S Non-controlling interests Hybrid capital Interest-bearing net debt Capital employed Additions to property, plant, and equip- ment Cash flows Cash flows from operating activities Gross investments Divestments Free cash flow Financial ratios Return on capital employed (ROCE), % LTM FFO/adjusted net debt, % LTM Number of outstanding shares, end of period, ’000 Share price, end of period, DKK Market capitalisation, end of period, DKKbn Earnings per share (EPS), DKK 54 Ørsted annual report 2022 Management’s review Governance 56 Message from the Chair 57 Corporate governance 60 Board of Directors 65 Group Executive Team 67 Shareholder information 55 We rely on ships to install, service, and operate the offshore wind farms that are helping de carbonise the world’s energy systems. But ships themselves are difficult to decarbonise, since they rely on fossil fuels and cannot yet be electrified. That is why we, in partnership with Danish offshore support supplier ESVAGT, have taken the important step of investing in the world’s first service operation vessel that can run on e-methanol produced by wind energy and carbon captured from biomass. Ørsted annual report 2022 Management’s review Governance | Message from the Chairman Message from the Chair We continued strengthening our corporate governance model for the next step in Ørsted’s growth journey. In the Board, we firmly believe that corporate governance is fundamental for Ørsted’s growth journey towards becoming the world’s leading green energy major. In 2022, the Board continued to strengthen the corporate governance model, which is based on three pillars: enabling the right decision- making, having the right competences in the right places, and fostering a company culture of inclusiveness and integ- rity. These pillars are the foundation for our ways of working across the organisation. As part of our commitment to continuously improve our ways of working, the Board completed its evaluation with the support from an external advisor in 2022. This evaluation highlighted development areas, which we consolidated into two primary projects going forward: revisiting our approach to the split of mandates between the Board and leader- ship team and strengthening our processes for talent management and retention. Strengthening decision-making across our footprint In 2022, we implemented a new organisational structure with three regions: the Americas, Europe, and APAC, complemented by global capabilities. Our aim is to strengthen simpler and faster decision-making, to secure customer and market centricity, and to realise synergies between our onshore and offshore businesses. The Board is confident that this new structure will assist Ørsted in seizing unprecedented market opportunities while meeting customer demands for integrated energy solutions. We formed a new executive leadership team, the Group Executive Team (GET), which reflects the new organisational set-up and consequently includes the Americas, Europe, and APAC regions, P2X, Legal, and Global Stakeholder Relations. The Board welcomed new senior executives, who bring varied skills and experiences to the team. In early 2023, we will implement new delegated authorities across the organisation to scale our governance model for future growth while supporting simpler and faster decision-making. Securing the right competences We want to ensure the right competences to success- fully drive our business forward. To further improve talent management and retention, we have introduced a recurring ’People’ update on the agenda for each ordinary meeting, an annual update on GET member successors with oppor- tunities for the Board to meet talents, and a process for better involvement of all Board members in recruitment to the Board. We welcomed the four employee-elected Board members, who won the elections early in 2022 for employees based in Denmark. The election process had a high level of en- gagement and a diverse representation of nationalities, backgrounds, ages, and genders. Following approval at our annual general meeting in 2022, the 2024 election will be open to all employees across our footprint. This will further solidify our global presence and bring perspectives from all locations where we are present. 56 Fostering a culture of inclusiveness and integrity Diversity was among the key criteria when filling the leader- ship positions of the new Ørsted organisation. This resulted in a more diverse leadership composition in terms of nation- ality, ethnicity, background, age, and gender. We recognise that we need to move our diversity, equity, and inclusion (DE&I) efforts further and farther, and this will continue to be a priority area for the Board. We believe that all Board members should be role models for integrity. We do so by being open and trustworthy while upholding high ethical standards. In the Board, we will con- tinue to promote a good culture, purpose, and sound values through our meetings and offsite activities. Efforts for the future We welcome and follow the recommendations prepared by the Danish Committee on Corporate Governance. On the following pages, you can read more about our cor- porate governance and our continued efforts to strengthen Ørsted’s governance procedures and culture. Thomas Thune Andersen Chair Ørsted annual report 2022 Management’s review Governance | Corporate governance Corporate governance The overall and strategic management of the company is anchored in a board of non-executive directors appointed by the shareholders. The Board of Directors appoints the Executive Board, consisting of the Group President and CEO, the CFO, and the Chief HR Officer (CHRO), who undertake the day-to-day management of Ørsted through the Group Executive Team. None of our executives are members of the Board of Directors. Shareholders and general meeting Ørsted is a publicly listed company with the Danish State as majority shareholder with a 50.1 % ownership share. The Danish State exercises its ownership interest in Ørsted in accordance with the ordinary governance set-up in Danish companies, where a board of non-executive directors (the Board of Directors) and executive directors (the Executive Board) are responsible for the management of the company. The Danish State exercises its interest at the general meeting. The Danish State’s ownership policy is available here (only in Danish): fm.dk/udgivelser/2015/ april/statens-ejerskabspolitik/. All our shareholders may exercise their rights and vote at the general meeting through a one-share-one-vote principle. The general meeting adopts decisions, such as the election of the Board of Directors and the auditor, in accordance with the ordinary Danish rules. Due to our majority ownership by the Danish State, we have a bespoke quorum requirement, as proposals to amend our articles of association or dissolve the company require that the Danish State participates in the general meeting and supports the proposals. Board of Directors Each year at the annual general meeting, the shareholders elect six to eight board members. In addition, our employ- ees may elect members corresponding to half of the board members elected by the general meeting pursuant to Danish mandatory rules. Employee elections are ordinarily held every four years, most recently in 2022. As our general meeting after the employee election in 2022 approved to expand our scheme for employee-elected board members to also cover employees outside Denmark, the current election period is only two years to allow for the first international election to be held already in 2024. For the time being, our Board of Directors comprises 12 members, eight members elected by the general meeting and four members elected by the employees. The Board of Directors is responsible for the overall and strategic management of the company. The Board of Directors lays down the company’s strategy and makes decisions concerning major investments and divestments, the capital base, key policies, control and audit matters, risk management, and significant operational issues. 57 Our governance model Shareholders and general meeting Board of Directors Nomination & Remuneration Commitee Audit & Risk Commitee Group Executive Team Ørsted annual report 2022 Management’s review Governance | Corporate governance You can see the most important tasks in 2022 to the right. The Board of Directors monitors and oversees progress related to our sustainability and climate change strategy, including our ambitious net-zero carbon reduction targets for scope 1-3 emissions. We routinely integrate climate change considerations when setting our strategic direction, reviewing sustainability risks, setting performance objectives, deciding on our capital allocation, and when approving and overseeing major investments, acquisitions, and divestments. The Board of Directors has prepared an overview of the com- petences required on the board. The list of required compe- tences can be found at orsted.com/competences-overview. We have a diverse Board of Directors. With three female board members out of the eight elected by the general meeting, we have equal representation as defined under Danish law. The age of our board members spans from 51 to 72 years old among board members elected by the general meeting and from 28 to 55 years old among board members elected by the employees. Our board members have different educational backgrounds within finance, economics, geophysics, and engineering and professional experience from the energy or other industries, private equity, private investments, and academia. A description of the individual board members, including their other executive positions, independence, and how the individual board members contribute to the required com- petences can be found in the following pages. Their meeting attendance during 2022 can be found on the next page. In the first half of 2022, the Board of Directors performed its annual evaluation of the Board of Directors with the assis- tance of an external advisor, Leadership Advisor Group. 58 Important tasks 2022 — managed by the Board of Directors Investments, acquisitions, and divestments Build-out of our offshore wind portfolio, including bids into seabed, project, or trans- mission auctions and tenders in the US, the UK, Denmark, and the Netherlands. Final investment decision on the South Fork Offshore wind farm. Signing of an agreement to divest 50 % of the Hornsea 2 Offshore Wind Farm to AXA IM Alts and Crédit Agricole Assurances. Build-out of our onshore portfolio in the US, including final investment decisions on the Sunflower Wind, Mockingbird Solar Center, and Eleven Mile projects. Acquisition of the onshore wind and solar plat- form in Germany and France from Ostwind and the Ford Ridge wind project in the US from Ares. Divestment of 50 % of a portfolio of four US onshore wind and solar projects to Energy Capital Partners. Acquisition of Public Service Enterprise Group’s (PSEG) 25 % equity stake in the 1,100 MW off- shore wind energy project Ocean Wind 1. Strategic discussions on development of the P2X business and FID on the Swedish Flag- shipONE e-methanol project. Decision to seek to divest our Renescience business. Other tasks Approval of new organisational structure, including formation of the Group Executive Team to drive global growth. Discussion of social responsibility and biodiversity. Issuance of green senior bonds to finance global build-out of renewable energy and green growth ambition and refinancing of green and hybrid capital securities. Approval of new hedging framework for merchant price exposure Oversight of our financial results and guidance. Oversight of the impacts of the Russian invasion of Ukraine, including the contractual relation- ship with Gazprom Export. Oversight of the results from the 2022 employee satisfaction survey, including the focus areas identified by the Group Executive Team. Oversight and discussion of the development of our consolidated environmental, social, and governance (ESG) statements. Ørsted annual report 2022 Management’s review Governance | Corporate governance The evaluation was based on input from board members and executives. It consisted of in-depth personal inter- views, a customised online questionnaire, an analysis of how time is spent during board meetings, board composi- tion mapping, and board composition benchmarking. The external advisor also observed a board meeting. As part of the evaluation, board members and executives were provided with feedback on their individual perfor- mance regarding how they add value to the board. The board evaluation was discussed at a board meeting in June. Each year, the general meeting approves the remuneration for the members of the Board of Directors for the coming year. In the separate remuneration report, you can read more about the remuneration of the Board of Directors. Furthermore, we have considered the recommendations prepared by the Danish Committee on Corporate Govern- ance. As further described in our corporate governance report, we comply with all recommendations except that we, due to lack of shareholder interest in observing general meetings virtually, do not offer this option to our shareholders unless special circumstances require it, like COVID-19 (recommendation 1.2.1). The Board of Directors was evaluated by the external advisor to be a very well-functioning board. The board members are highly professional, knowledgeable, and passionate about the company purpose. They understand their stewardship role and cooperate with the Executive Committee (now Group Executive Team) in an engaged and transparent way. Led by the Chair, the tone is open, respectful, and very encouraging. Meetings are run in a structured way, board members feel they can say what they mean, and the operation of the board meetings and the committees works well. Going forward, the external advisor suggested that the board first and foremost reviews how it spends it time. While the number of investment projects continue to in- crease, there will be a delicate balance to strike, ensuring investments will continue to be appropriately discussed, while also allocating sufficient time for discussing other key strategic questions. “ Led by the Chair, the tone is open, respectful, and very encouraging See link to the remuneration report below. See also links to the statutory reports on data ethics and corporate gov- ernance prepared in accordance with the Danish Financial Statements Act, sections 99 d and 107 b, respectively. orsted.com/remuneration2022 orsted.com/dataethics2022 orsted.com/corporategovernance2022 59 Meeting attendance Member of the board Board of Directors Audit & Risk Committee Nomination & Remuneration Committee Ordinary Extraordinary Thomas Thune Andersen 6/11 Lene Skole Lynda Armstrong Jørgen Kildahl Julia King Peter Korsholm Henrik Poulsen Dieter Wemmer Benny Gøbel Leticia Francisca Torres Mandiola2 Alice Florence Marion Vallienne2 Anne Cathrine Collet Yde2 7/0 7/0 7/0 7/0 7/0 7/0 7/0 7/0 6/0 6/0 6/0 6/0 6/0 4/2 6/0 6/0 6/0 5/1 6/0 6/0 2/0 2/0 2/0 6/0 5/1 5/1 7/1 8/0 8/0 The numbers indicate how many meetings in 2022 the members have attended or not attended, respectively, during the year. 1 Due to illness. 2 Joined the Board of Directors on 8 April 2022. Ørsted annual report 2022 Management’s review Governance | Board of Directors Board of Directors Thomas Thune Andersen *1955, Denmark Lene Skole *1959, Denmark Lynda Armstrong *1950, Great Britain Elected by the general meeting Elected by the general meeting Elected by the general meeting Chair since Independent Joined Re-elected Term of office expires 2014 2014 2022 2023 Experience Extensive international leadership experience from leading positions in A.P. Moller - Maersk and non-executive director- ships in listed and privately held companies within the energy, critical infrastructure, and other sectors. Positions Chair VKR Holding A/S, Lloyds Register Group Limited, and Lloyds Register Foundation. Member BW Group Ltd, IMI plc (Senior Independent Director) and Green Hydrogen Systems A/S. Board committees Remuneration Committee of Lloyds Register Group Limited, Nomination Committee of Lloyds Register Foundation, Nomination Committee, Remuneration Committee, and the Audit Committee of IMI plc, and Nomination Committee of VKR Holding A/S. Other Member of the Danish Committee on Corporate Governance, Commissioner of the Energy Transition Commission (ETC), member of the Community of Chairpersons of the World Economic Forum (WEF), and member of Friends of Ocean Action of WEF. Competences Management · General · Safety · Risk · Project · Stakeholder Other · Energy sector · ESG 60 Deputy Chair since Independent Joined Re-elected Term of office expires 2015 2015 2022 2023 Experience Highly experienced in managing listed companies from her previous position as CFO of Coloplast and current position as CEO of Lundbeckfonden where she serves as a non-executive director of the portfolio companies of Lundbeckfonden. Positions CEO Lundbeckfonden and Lundbeckfond Invest A/S. Chair LFI Equity A/S. Deputy Chair ALK-Abelló A/S, H. Lundbeck A/S, and Falck A/S. Member Nordea Bank Abp. Board committees Member of the Audit Committee and member of the Remuneration Committee of Falck A/S, member of the Nomination & Remuneration Committee and Scientific Committee of ALK-Abelló A/S, member of the Nomination & Remuneration Committee and Scientific Committee of H. Lundbeck A/S, and member of the Audit Committee of Nordea Bank Abp. Competences Management · General · Financial · Risk · Stakeholder · Human resources. Other · Investor and capital market relationships · ESG Independent Joined Re-elected Term of office expires 2015 2022 2023 Experience Strong global managerial experience from more than 30 years in leading positions in Shell, including as Vice President in Shell International, and from non-executive directorships in international companies and large organisations. Positions Chair The Engineering Construction Industry Training Board (ECITB). Competences Management · General · Safety · Risk · Project · Stakeholder · Human resources. Other · Energy sector · ESG Ørsted annual report 2022 Management’s review Governance | Board of Directors Jørgen Kildahl *1963, Norway Elected by the general meeting Independent Joined Re-elected Term of office expires 2018 2022 2023 Experience Strong international background in renewable energy and a profound knowledge of how the energy ecosystems work from positions as Executive Vice President of Statkraft and member of the Board of Management of E.ON SE. Positions Deputy Chair Telenor ASA. Member Scatec ASA and Alpiq AG. Other Senior Advisor and member of the Energy Investment Committee of Energy Infrastructure Partners, Switzerland, and advisor to the Board of Directors of Abu Dhabi National Energy Company PJSC (TAQA). Board committees Chair of the Sustainability & Compliance Committee and member of the Audit & Risk Committee of Telenor ASA, the Audit Committee of Scatec ASA, and the Audit Committee of Alpiq AG. Competences Management · General · Safety · Risk · Project · Stakeholder Other · Energy sector · IT, technology, and digitalisation · Investor and capital market relationships · ESG 61 Julia King The Baroness Brown of Cambridge *1954, Great Britain Elected by the general meeting Independent Joined Re-elected Term of office expires 2021 2022 2023 Experience Strong international background within engineering in both industry and academia, including Rolls-Royce plc, Cambridge University, and Imperial College. A deep knowledge of renewable energy and government policy perspectives from positions, among others, as member of the Committee on Climate Change and Non-executive director of the Green Investment Bank. Positions Chair The Carbon Trust, STEM Learning Ltd. Non-executive director Ceres Power Holdings and Frontier IP. Other Crossbench Peer in the UK House of Lords, Chair of the House of Lords Science and Technology Select Committee, Chair of the Adaptation Committee of the Committee on Climate Change, and member of the UK Hydrogen Policy Commission. Competences Management · General · Financial · Project · Stakeholder Other · IT, technology, and digitalisation · ESG Peter Korsholm *1971, Denmark Elected by the general meeting Independent Joined Re-elected Term of office expires 2017 2022 2023 Experience Extensive M&A experience from his time as Partner and Head of EQT Partners Denmark and from private investments. Also experience with financial reporting, risk management, and capital markets from CFO position at AAK AB. Positions CEO DSVM Invest A/S, DSV Miljø Group A/S, Togu ApS, and Totalleveranser Sverige AB. Chair Flügger Group A/S, Nymølle Stenindustrier A/S, Totalleveranser Sverige AB, Lion Danmark I ApS, and two wholly-owned subsidiaries of Lion Danmark I ApS (Lomax Group). Member DSVM Invest A/S and eight wholly-owned subsidiaries of DSVM Invest A/S, BCHG Holding A/S, and two-wholly owned subsidiaries of BCHG Holding A/S, and Projekt- selskabet Teglbuen A/S. Other Chair of Investment Committee of Zoscales Partners. Competences Management · General · Financial · Risk · Stakeholder Other · Investor and capital market relationships · ESG Ørsted annual report 2022 Management’s review Governance | Board of Directors Henrik Poulsen *1967, Denmark Dieter Wemmer *1957, Switzerland Benny Gøbel *1967, Denmark Elected by the employees Not independent Joined Re-elected Term of office expires 2011 2022 2024 Experience Benny Gøbel has worked in Ørsted since 2005. Positions Senior Mechanical Specialist, EPCO & IT. Competences Other · Energy sector Elected by the general meeting Elected by the general meeting Independent Joined Re-elected Term of office expires 2018 2022 2023 Experience Highly experienced in capital markets, investments, and risk management from leading positions within the finance sector, including as CFO of Allianz. Positions Chair Marco Holding, plc and one wholly-owned subsidiary of Marco Holding, plc. Member UBS Group AG and UBS AG. Board committees Member of the Audit Committee and Compensation Committee of USB Group AG and UBS AG. Competences Management · General · Financial · Risk · Stakeholder Other · IT, technology, and digitalisation · Investor and capital market relationships · ESG Not independent1 Joined Re-elected Term of office expires 2021 2022 2023 Experience Unique company and industry knowledge from his former role as CEO of Ørsted. Extensive capabilities within strategy and value creation, transformational change, and finance from former executive positions in TDC, Capstone/KKR, and LEGO, and his current portfolio of non-executive directorships. Positions Chair Carlsberg A/S and Carlsberg Breweries A/S, Faerch Group Holding A/S and Faerch A/S. Deputy Chair Novo Nordisk A/S. Member Bertelsmann SE & Co. KgaA and Novo Holdings A/S. Other Senior Advisor: A.P. Møller Holding A/S. Competences Management · General · Safety · Financial · Risk · Project · Stakeholder Other · Energy sector · Investor and capital market relationships · ESG. 1 Henrik Poulsen is not independent as he is the former CEO of Ørsted, cf. recommendation 3.2.1 of the Danish corporate governance recommendations. 62 Ørsted annual report 2022 Management’s review Governance | Board of Directors Anne Cathrine Collet Yde *1983, Denmark Alice Florence Marion Vallienne *1994, France Leticia Francisca Torres Mandiola *1994, Chile Elected by the employees Elected by the employees Elected by the employees Not independent Joined Term of office expires 2022 2024 Experience Anne Cathrine Collet Yde has worked in Ørsted since 2017. Positions Lead HR Business Partner, People & Development. Competences Management · Project · Stakeholder · Human resources Not independent Joined Term of office expires 2022 2024 Not independent Joined Term of office expires 2022 2024 Experience Alice Florence Marion Vallienne has worked in Ørsted since 2018. Experience Leticia Francisca Torres Mandiola has worked in Ørsted since 2018. Positions Head of Ventures & Open innovation portfolio, EPCO & IT. Positions Senior Business Developer, P2X. Competences Management · Financial · Risk · Project Other · Energy sector · IT, technology, and digitalisation Competences Other · Energy sector · IT, technology, and digitalisation 63 Ørsted annual report 2022 Management’s review Governance | Board of Directors Board committees The Board of Directors has appointed two committees from among its members: an Audit & Risk Committee and a Nomination & Remuneration Committee, which assist the Board of Directors within selected areas. Audit & Risk Committee Dieter Wemmer (Chair), Jørgen Kildahl, and Peter Korsholm are the members of the Audit & Risk Committee. The committee assists the Board of Directors in overseeing the financial and ESG reporting process (including key accounting estimates and judgements), liquidity and capital structure development, financial and business-related risks, compliance with statutory and other requirements from public authorities, internal controls, IT security in operational and administrative areas as well as cybersecurity. Moreover, the committee approves the framework governing the work of the company’s external and internal auditors (including limits for non-audit services), evaluates the exter- nal auditors’ independence and qualifications, and monitors the company’s whistle-blower scheme. In 2022, the committee reviewed the continued material impact from the volatile energy prices on the risk manage- ment procedures and the financial statement, the current and future hedging framework, the financial impact of the acquisition of Ostwind, impairment on our property, plant and equipment, as well as the continued implementation of the EU taxonomy reporting framework. Furthermore, the committee continued to assess the claim made by the Danish Tax Agency requiring further Danish taxation of certain of our British offshore wind farms, and lastly, it reviewed the progress in IT security. 64 Our Internal Audit function reports to the Audit & Risk Com- mittee and is independent of our administrative manage- ment structures. Internal Audit enhances and protects the organisational value by providing risk-based and objective assurance, advice, and insight. The focus for Internal Audit is to audit and advise on our core processes, governance, risk management, control processes, and IT security. The Chair of the Audit & Risk Committee is responsible for managing our whistle-blower scheme. Internal Audit receives and handles any reports submitted. Our employees and other associates may report serious offences, such as cases of bribery, fraud, and other inappropriate or illegal conduct, to our whistle-blower scheme or through our management system. In 2022, eight substantiated cases of inappropriate or unlawful behaviour were reported through our whistle- blower scheme. Six cases related to Good business conduct policy violations, while one case concerned IT security, and one case concerned the workplace environment. None of the reported cases were critical to our business, nor caused adjustments to our financial results. One case required a police report. Whistle-blower cases are taken very seriously, and we continuously enhance the awareness of good business conduct through education and awareness campaigns to minimise future similar cases. You can read more about the Audit & Risk Committee and the terms of reference for the committee at orsted.com/ audit-risk-committee. Nomination & Remuneration Committee Thomas Thune Andersen (Chair), Lene Skole, and Lynda Armstrong are the members of the Nomination & Remunera- tion Committee. The committee assists the Board of Directors in matters regarding the composition, remuneration, and performance of the Board of Directors and the Group Executive Team. In 2022, the committee reviewed the remuneration policy for the Board of Directors and the Executive Board and pro- posed certain updates to the policy, which were approved at our annual general meeting in April 2022. The updates of the remuneration policy include an amendment of the short-term incentive scheme (STI) for the Executive Board by increasing the weight of shared KPIs, including an explicit link to our sustainability ambitions, an extension of the share- holding build-up period in respect of our share-based long- term incentive scheme from three to five years, and a board authorisation to temporarily deviate from the remuneration policy by offering a compensation to new external execu- tives for any former incentive-based remuneration forfeited upon joining Ørsted. The committee also discussed the appointments of Daniel Lerup as new CFO, of CHRO Henriette Fenger Ellekrog as new member of the Executive Board, and of a new ‘Group Executive Team’ replacing the previous ‘Executive Committee’. You can read more about the Nomination & Remuneration Committee and the terms of reference for the committee at orsted.com/nomination-remuneration-committee. Ørsted annual report 2022 Management’s review Governance | Group Executive Team Group Executive Team The 11 members of the Group Executive Team undertake the day-to-day management. Mads Nipper (Group President and CEO), Daniel Lerup (CFO), and Henriette Fenger Ellekrog (CHRO) constitute the members of the Executive Board of Ørsted A/S. The Group Executive Team comprises Rasmus Errboe (CEO of Region Europe), David Hardy (CEO of Region Americas), Per Mejnert Kristensen (President of Region APAC), Neil O´Donovan (Head of Strategy, Portfolio & Partnerships), Olivia Breese (Head of P2X), Richard Hunter (COO), Anders Zoëga Hansen (Head of Legal), and Ingrid Reumert (Head of Global Stake- holder Relations). The Board of Directors has laid down guidelines for the work of the Executive Board, including the division of work between the Board of Directors and the Executive Board, and the Executive Board’s powers to enter into agreements on behalf of the company. The Board of Directors regularly discusses the Group President and CEO’s performance, for example by following up on devel- opments seen in relation to our strategy and objectives. The Chair of the Board of Directors and the Group President and CEO also regularly discuss the cooperation between the Board of Directors and the Executive Board. We describe the remuneration of the Executive Board in the separate remuneration report. You can also find information about the members of the Executive Board on the next page. 65 Standing from left to right: Seated from left to right: Rasmus Errboe CEO of Region Europe Olivia Breese Head of P2X Daniel Lerup CFO, Executive Board David Hardy CEO of Region Americas Per Mejnert Kristensen President of Region APAC Mads Nipper Group President and CEO, Executive Board Richard Hunter COO Henriette Fenger Ellekrog CHRO, Executive Board Neil O’Donovan Head of Strategy, Portfolio & Partnerships Anders Zoëga Hansen Head of Legal Ingrid Reumert Head of Global Stakeholder Relations Ørsted annual report 2022 Management’s review Governance | Group Executive Team Mads Nipper *1966, Denmark Registered as CEO. Group President and Chief Executive Officer (CEO) since January 2021. Education MSc in International Business, University of Aarhus 1991 Career Ørsted A/S 2021 — Group President and Chief Executive Officer. Grundfos A/S 2014 — 2020 Group President and Chief Executive Officer. Lego A/S 1991 – 2014 EVP, Chief Marketing Officer (2011 – 2014) EVP, Markets & Products (2006 – 2011) SVP, Global Innovation & Marketing (2004 – 2006) Managing Director & SVP, Lego Central Europe (2001 – 2004) SVP, Global Segment 8+ (1999 – 2001) Various managerial positions (1992 – 1999) Other positions Deputy Chair of the Board of Directors of FLSmidth & Co. A/S and one wholly-owned subsidiary hereof. 66 Daniel Lerup *1983, Denmark Registered as Chief Financial Officer (CFO) since April 2022. Education MSc in Finance & Accounting, Copenhagen Business School 2009. Career Ørsted A/S 2009 – Ørsted A/S (and formerly DONG Energy A/S): CFO (2022-), Head of Commercial and EPC & Operations Finance (2021-2022), Senior Vice President, CFO Offshore (2019-2021), Senior Vice President, Investor Relations, Financial Planning & Tax (2018-2019), Vice President, Financial Planning & Tax (2016-2018), Head of Group Financial Analysis (2014-2016), various positions within the Finance function (2009-2014). Other positions CEO: Tukan ApS, Shcarole Invest ApS, and December 20 ApS. Chair of the Board of Directors of Koncenton Metropol A/S and two wholly-owned subsidiaries of Koncenton Metropol A/S. Member of the Board of Directors: Koncenton Søborg Hovedgade A/S, Projekt Svendborg III ApS, Tyrsted Holding P/S, and one wholly-owned subsidiary of Tyrsted Holding P/S. Henriette Fenger Ellekrog *1966, Denmark Registered as Chief HR Officer (CHRO) since November 2022. Education MA, (Cand.ling.merc) Copenhagen Business School 1992. Career Ørsted A/S 2019 – Chief HR Officer (CHRO) Danske Bank A/S 2014 – 2019 Most recently as Chief HR Officer. SAS AB 2007 – 2014 Most recently as Deputy CEO, EVP, HR & Communication. TDC A/S 1998 – 2007 Most recently as Senior Executive Vice President, Chief of Staff, Member of Executive Management Team. Peptech (Europe) A/S and Mercuri Urval A/S 1992– 1998 Various positions. Other positions Member of the Board and of the Nomination & Remuneration Committee: NV Bekaert SA. Member of the Board: Specialisterne Foundation. Member of the ‘Women on Board’ advisory board in the Confederation of Danish Industry (DI). Ørsted annual report 2022 Management’s review Governance | Shareholder information Shareholder information Share price development 2022 Ørsted share price compared to peers (indexed) Turnover, Ørsted Ørsted MSCI EU Utilities OMXC25 Over the past five years, the Ørsted share has generated a total return from share price appreciation and dividends of 107 %. Price development for the Ørsted share in 2022 The Ørsted share yielded a total loss of 23 % in 2022, a decrease in the share price of 24 %, and dividends of DKK 12.5 per share. The share price of comparable European utility companies decreased by 11 % (7 % total loss), and the OMX C25 cap decreased by 13 % (11 % total loss) in 2022. Over the past five years, the Ørsted share has generated a total return from share price appreciation and dividends of 107 %, an increase in the share price of 91 %, and dividends of DKK 53.82 per share. The highest traded share price of the year was DKK 898 on 8 March, while the year’s lowest traded price of DKK 575 was on 21 October. The Ørsted share closed 2022 at DKK 631, corresponding to a market value of DKK 272 billion at the end of the year. The average daily turnover on Nasdaq Copenhagen was 496,899 shares in 2022. The trading volume decreased by 10 % compared to 2021. Share capital Ørsted’s share capital is divided into 420 million shares, enjoying the same voting and dividend rights. The company’s share capital remained unchanged in 2022. At the end of 2022, the company held a total of 154 thousand treasury shares, which will be used to cover incentive schemes. 67 Share price 1,000 900 800 700 600 500 Volumes 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Share data Earnings per shares, DKK Proposed dividend per share, DKK Dividend yield, % Share price, year-end, DKK Share price, high, DKK Share price, low, DKK Market capitalisation, year-end, DKKm 2022 2021 2020 2019 34.6 13.5 2.1 631 898 575 272 24.3 12.5 1.5 835 1,400 790 351 38.8 11.5 0.9 1,244 1,273 574 523 12.7 10.5 1.5 689 691 428 290 2018 45.3 9.8 2.2 436 474 332 183 Average trading per day, thousands of shares 496,899 549,778 516,919 447,567 447,103 Ørsted annual report 2022 Management’s review Governance | Shareholder information Composition of shareholders At the end of the year, the number of shareholders had increased by 6 % to 117,818, and the majority (61 %) lies with Danish owners. The figure to the right shows the composition of our shareholders by country, specifying the two shareholders each holding more than 5 % of the share capital. Approx. 2 % of the share capital is owned by Danish retail investors. Annual general meeting and dividends The annual general meeting will be held on 7 March 2023. Dividends for the year are expected to amount to DKK 13.5 per share, corresponding to DKK 5.7 billion and a yield of 2.1 % compared to the share price of DKK 631 at the end of 2022. In 2022, dividends of DKK 12.5 per share were paid for the 2021 financial year. Investor relations To achieve a fair pricing of our shares and corporate bonds, we seek to ensure a high level of transparency and stability in our financial communication. In addition, our management and our Investor Relations function engage in regular dialogues with investors and analysts. The dialogues take the form of quarterly conference calls, roadshows, conferences, capital markets days, and regular meetings with individual or groups of investors and analysts. The dialogues are subject to certain restrictions prior to the publication of our financial reporting. In 2022, we had over 600 meetings with the financial market, participated in 40 investor events, and had 55 travel days. Ørsted is covered by 30 equity analysts and 11 bond an- alysts. Their recommendations and consensus estimates for Ørsted’s future financial performance are available at orsted.com/en/investors. On this site, you can also download our financial reports, our remuneration report, our ESG performance report, our sustainability report, our investor presentations, and a wide range of other data. 68 Shareholders at 31 December 2022 Share capital and/or voting share % Denmark 61 % Danish State (majority shareholder) 50.1 % Andel A.M.B.A 5 % Retail investors 2 % Danish institutional investors 4 % North America 10 % United Kingdom 10 % Others 19 % Share information ISIN Share classes Nominal value Exchange Ticker Registered share DK 0060094928220 1 DKK 10 per share Nasdaq OMX Copenhagen ORSTED 97.7 % Number of shares 420,381,080 shares Number of treasury shares 154,344 shares Selected company announcements in 2022 2 Feb. Ørsted appoints next Group CFO 11 Feb. Ørsted and Eversource joint venture approves final investment decision on New York’s South Fork Wind Offshore Wind Farm 28 Apr. Ørsted takes final investment decision on 201 MW onshore wind project Sunflower Wind in Kansas, US 7 July Ørsted awarded contract for world’s single biggest offshore wind farm 19 Sep. Ørsted completes acquisition of German and French onshore wind platform Ostwind 29 Sep. Ørsted completes divestment of 50 % of Hornsea 2 Offshore Wind Farm 4 Oct. Ørsted to implement new organisational structure and changes to executive management to drive global growth 21 Oct. Ørsted partners with ECP in the company’s first-ever farm-down of onshore assets 16 Dec. Green fuels for Denmark receives Danish IPCEI funding 20 Dec. Ørsted assumes full ownership and takes final investment decision on FlagshipONE, the largest green e-methanol project in Europe Financial calendar 2023 1 Feb. 7 Mar. Annual general meeting Annual report 2022 Interim reports: The first quarter of 2023 3 May 10 Aug. The first half-year of 2023 1 Nov. The first nine months of 2023 Ørsted annual report 2022 Financial statements Consolidated financial statements 2022 1 January – 31 December 69 We are establishing an onshore business in Spain – one of Europe’s largest renewables markets – by entering into four partnerships with Glide Energy, Rolwind, ARBA Energías Renovables, and Ereda, who will support project development and services. Spain is an absolute front runner in the green energy transition and an attractive market for us. The Spanish government has set out to reach 70 % renewable generation by 2030 followed by 100 % renewable generation by 2050. Ørsted annual report 2022 Financial statements Contents Consolidated financial statements Notes Consolidated statement of income . . . . . . . . . . . . . . . . . 71 Consolidated statement of comprehensive income . . . . . . . 72 Consolidated balance sheet . . . . . . . . . . . . . . . . . . . . . . 73 Consolidated statement of shareholders’ equity . . . . . . . . . 74 Consolidated statement of cash flows . . . . . . . . . . . . . . . 75 70 1. 1.1 1.2 Basis of reporting 4. Tax Significant changes and events . . . . . . . . . . . . . . . 77 Basis of preparation . . . . . . . . . . . . . . . . . . . . . . . 78 2. Return on capital employed Segment information . . . . . . . . . . . . . . . . . . . . . . 82 2.1 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 2.2 Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 2.3 2.4 Government grants . . . . . . . . . . . . . . . . . . . . . . . 88 2.5 Research and development expenditures . . . . . . . . . 88 2.6 Other operating income and expenses . . . . . . . . . . 89 Employee costs . . . . . . . . . . . . . . . . . . . . . . . . . 90 2.7 Share-based payment . . . . . . . . . . . . . . . . . . . . . 91 2.8 Approach to taxes . . . . . . . . . . . . . . . . . . . . . . . 110 4.1 4.2 Tax on profit (loss) for the year . . . . . . . . . . . . . . . 112 4.3 Deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 4.4 Our tax footprint . . . . . . . . . . . . . . . . . . . . . . . . 117 5. Capital structure Interest-bearing debt and FFO . . . . . . . . . . . . . . . 123 5.1 5.2 Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 5.3 Hybrid capital . . . . . . . . . . . . . . . . . . . . . . . . . 128 5.4 Liquidity reserve . . . . . . . . . . . . . . . . . . . . . . . . 129 5.5 Maturity analysis of financial liabilities . . . . . . . . . 131 Financial income and expenses . . . . . . . . . . . . . . 132 5.6 3. Capital employed 6. Risk management 3.1 Acquisition of enterprises . . . . . . . . . . . . . . . . . . . 94 3.2 Divestment of enterprises . . . . . . . . . . . . . . . . . . . 96 Intangible assets, and property, plant, and equipment . 97 3.3 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 3.4 Contract assets and liabilities . . . . . . . . . . . . . . . 103 3.5 3.6 Trade receivables . . . . . . . . . . . . . . . . . . . . . . . 104 3.7 Other receivables and other payables . . . . . . . . . . 104 Tax equity liabilities . . . . . . . . . . . . . . . . . . . . . . 105 3.8 3.9 Provisions and contingent liabilities . . . . . . . . . . . 106 3.10 Non-controlling interests . . . . . . . . . . . . . . . . . . 108 6.1 Market risk policy . . . . . . . . . . . . . . . . . . . . . . . 134 Currency risks . . . . . . . . . . . . . . . . . . . . . . . . . . 135 6.2 Energy and commodity price risks . . . . . . . . . . . . 139 6.3 Inflation and interest rate risks . . . . . . . . . . . . . . . 142 6.4 Credit risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 6.5 Fair value measurement . . . . . . . . . . . . . . . . . . . 145 6.6 Energy trading portfolio . . . . . . . . . . . . . . . . . . . 147 6.7 Categories of financial instruments . . . . . . . . . . . . 148 6.8 Sensitivity analysis of financial instruments . . . . . . 149 6.9 7. 7.1 7.2 7.3 7.4 7.5 Other notes Related-party transactions . . . . . . . . . . . . . . . . . 150 Auditor’s fees . . . . . . . . . . . . . . . . . . . . . . . . . . 151 Alternative performance measures . . . . . . . . . . . . 152 Company overview . . . . . . . . . . . . . . . . . . . . . . 153 Events after the reporting period . . . . . . . . . . . . . 154 Ørsted annual report 2022 Financial statements Consolidated financial statements | Consolidated statement of income Consolidated statement of income 1 January – 31 December Note DKKm 2.2, 2.4 Revenue 2.3 Cost of sales Other external expenses 2.7, 2.8 Employee costs Share of profit (loss) in associates and joint ventures Other operating income Other operating expenses Operating profit (loss) before depreciation, amortisation, and impairment losses (EBITDA) Amortisation, depreciation, and impairment losses on intangible assets, and property, plant, and equipment Operating profit (loss) (EBIT) Gain (loss) on divestment of enterprises Share of profit (loss) in associates and joint ventures Financial income Financial expenses Profit (loss) before tax Tax on profit (loss) for the year Profit (loss) for the year Profit (loss) for the year is attributable to: Shareholders in Ørsted A/S Interests and costs, hybrid capital owners of Ørsted A/S Non-controlling interests Earnings per share (DKK) Diluted earnings per share (DKK) Proposed dividend per share (DKK) 2.6 2.6 3.3 3.2 5.6 5.6 4.2 5.2 5.2 5.2 71 2022 2021 132,277 (97,163) (7,049) (5,278) 114 14,119 (4,963) 32,057 (12,283) 19,774 331 40 15,514 (18,050) 17,609 (2,613) 14,996 77,673 (53,110) (5,760) (4,289) (17) 10,185 (386) 24,296 (8,101) 16,195 (742) (10) 4,380 (6,546) 13,277 (2,390) 10,887 14,549 10,222 577 (130) 34.6 34.6 13.5 740 (75) 24.3 24.3 12.5 Ørsted annual report 2022 Financial statements Consolidated financial statements | Consolidated statement of comprehensive income Consolidated statement of comprehensive income 1 January – 31 December Note DKKm Profit (loss) for the year Other comprehensive income: Cash flow hedging: Value adjustments for the year Value adjustments transferred to income statement Value adjustments transferred to balance sheet Exchange rate adjustments: Exchange rate adjustments relating to net investment in foreign enterprises Value adjustment of net investment hedges Value adjustments and hedges transferred to income statement Tax: Tax on hedging instruments Tax on exchange rate adjustments Other: Share of other comprehensive income from associated companies, after tax Other comprehensive income Total comprehensive income Comprehensive income for the year is attributable to: Shareholders in Ørsted A/S Interest payments and costs, hybrid capital owners of Ørsted A/S Non-controlling interests Total comprehensive income 6 5.2 5.2 6.2 5.2 72 Statement of comprehensive income All items in ‘Other comprehensive income’ may be recycled to the income statement. Cash flow hedging Value adjustments for the year for cash flow hedging amounting to DKK -23,521 million mainly consist of losses related to the hedging of power and, to a lesser extent, losses related to the hedging of gas and the inflation in the UK. The loss of DKK 24,395 million transferred to the income statement mainly consists of losses related to the hedging of power. Exchange rate adjustments In 2022, foreign exchange losses relating to net investment in foreign enterprises amounting to DKK 3,747 million were primarily attributable to a decrease of 5 % in the GBP exchange rate and a decrease of 4 % in the NTD exchange rate, partly countered by an increase of 7 % in the USD exchange rate. A part of the net investment was hedged. 2022 2021 14,996 10,887 (23,521) 24,395 (116) (39,704) 7,530 (121) (3,747) 738 676 (902) 666 6,717 (3,359) (145) 6,713 (265) 26 15 (1,785) (22,619) 13,211 (11,732) 12,886 (12,585) 577 (252) 740 113 13,211 (11,732) Ørsted annual report 2022 Financial statements Consolidated financial statements | Consolidated balance sheet Consolidated balance sheet 31 December Note Assets DKKm 3.3 3.3 3.3 3.3 3.3 6 4.3 3.7 3.4 6 3.5 3.6 3.7 5.4 5.4 Intangible assets Land and buildings Production assets Fixtures and fittings, tools, and equipment Property, plant, and equipment under construction Property, plant, and equipment Investments in associates and joint ventures Other securities and equity investments Derivatives Deferred tax Other receivables Other non-current assets Non-current assets Inventories Derivatives Contract assets Trade receivables Other receivables Income tax Securities Cash Current assets Assets classified as held for sale Assets Assets and related liabilities held for sale At 31 December 2021, assets and related liabilities held for sale comprised our oil pipe system in Denmark, which is an activity in Bioenergy & Other. 73 2022 4,029 7,980 119,211 1,543 48,931 177,665 772 182 1,804 13,719 3,243 19,720 2021 1,543 8,066 95,618 604 57,108 161,396 572 221 2,716 13,281 2,492 19,282 201,414 182,221 14,103 23,433 408 12,701 20,289 419 25,197 16,178 112,728 - 15,998 14,078 2 9,565 16,134 1,200 21,228 8,624 86,829 1,335 314,142 270,385 Note 5.2 5.2 5.2 5.2 5.3 Equity and liabilities DKKm Share capital Reserves Retained earnings Proposed dividends Equity attributable to shareholders in Ørsted A/S Hybrid capital 3.10 Non-controlling interests 4.3 3.9 5.5 5.1 6 3.5 3.8 3.7 3.9 5.5 5.1 6 3.5 3.8 3.7 Equity Deferred tax Provisions Lease liabilities Bond and bank debt Derivatives Contract liabilities Tax equity liabilities Other payables Non-current liabilities Provisions Lease liabilities Bond and bank debt Derivatives Contract liabilities Trade payables Tax equity liabilities Other payables Income tax Current liabilities Liabilities 2022 4,204 2021 4,204 (26,467) (24,778) 88,331 5,675 71,743 19,793 3,996 95,532 7,414 19,121 7,697 60,451 24,121 3,085 14,490 7,363 143,742 585 569 2,830 33,438 2,269 20,641 1,903 7,518 5,115 79,391 5,255 64,072 17,984 3,081 85,137 5,616 15,124 6,812 31,502 17,464 3,230 13,358 4,682 97,788 764 720 19,493 32,325 2,440 20,231 1,206 4,768 5,021 74,868 86,968 218,610 184,756 Liabilities relating to assets classified as held for sale - 492 Equity and liabilities 314,142 270,385 Ørsted annual report 2022 Financial statements Consolidated financial statements | Consolidated statement of shareholders’ equity 2022 Consolidated statement of shareholders’ equity 1 January – 31 December DKKm Share capital Reserves 1 Retained earnings Proposed dividends Share- holders in Ørsted A/S Hybrid capital Non-con- trolling interests Total Group Share capital Reserves 1 Retained earnings Proposed dividends Share- holders in Ørsted A/S Hybrid capital Non-con- trolling interests 2022 2021 Total Group Equity at 1 January 4,204 (24,778) 79,391 5,255 64,072 17,984 3,081 85,137 4,204 (1,956) 74,294 4,834 81,376 13,232 2,721 97,329 14,549 577 (130) 14,996 10,222 740 (75) 10,887 Comprehensive income for the year: Profit (loss) for the year Other comprehensive income: Cash flow hedging Exchange rate adjustments Tax on other comprehensive income Share of other comprehensive income of associated companies, after tax Total comprehensive income Coupon payments, hybrid capital Tax, hybrid capital Additions, hybrid capital Disposals, hybrid capital Proposed dividends Dividends paid Additions, non-controlling interests Other changes - - - - - - - - - - - - - - - 14,549 758 (2,211) (236) - - - - 26 (1,689) 14,575 - - - - - - - - - - - - - - - - - - - - - - 758 (2,211) (236) 26 12,886 - - - - - - - - - 577 (529) 13 3,693 (1,945) - - - - - 758 (122) (2,333) - - (236) 26 (252) 13,211 - - - - - (294) 1,461 - (529) 13 3,693 (1,945) - (5,546) 1,461 37 (5,675) 5,675 3 - 37 (5,255) (5,252) - - - 37 - - - - - - - - - - - - - - - 10,222 (32,295) 3,025 6,448 - - - - 15 (22,822) 10,237 - - - - - - - - - - - - - - - - - - - - - - (32,295) 3,025 6,448 15 (12,585) - - - - - - - - - 740 (430) 86 7,327 (2,971) - - - - - (32,295) 188 - - 3,213 6,448 15 113 (11,732) - - - - - (349) 596 - (430) 86 7,327 (2,971) - (5,179) 679 28 (5,255) 5,255 4 83 28 (4,834) (4,830) - - 83 28 Equity at 31 December 4,204 (26,467) 88,331 5,675 71,743 19,793 3,996 95,532 4,204 (24,778) 79,391 5,255 64,072 17,984 3,081 85,137 1 See note 5.2 ‘Equity’ for more information about reserves. 74 Ørsted annual report 2022 Financial statements Consolidated financial statements | Consolidated statement of cash flows Consolidated statement of cash flows 1 January – 31 December Note DKKm Operating profit (loss) before depreciation, amortisation, and impairment losses (EBITDA) Reversal of gain (loss) on divestment of assets Change in derivatives Change in provisions Other items Change in inventories Change in contract assets and liabilities Change in trade receivables Change in other receivables Change in trade payables Change in tax equity liabilities Change in other payables Interest received and similar items Interest paid and similar items 4.4 Income tax paid Cash flows from operating activities Purchase of intangible assets, and property, plant, and equipment Sale of intangible assets, and property, plant, and equipment 3.1 3.2 Acquisition of enterprises Divestment of enterprises Purchase of other equity investments Purchase of securities Sale/maturation of securities Change in other non-current assets Transactions with associates and joint ventures Dividends received and capital reductions Cash flows from investing activities 75 Supplementary statements Our supplementary statements of gross and net investment appear from note 3.0 ‘Capital employed’ and free cash flows (FCF) from note 2.1 ‘Segment information’. 2022 32,057 (10,885) (8,687) (1,935) (278) 1,419 (1,303) (2,875) 2,742 3,886 (353) (38) 7,985 (8,548) (1,263) 11,924 2021 24,296 (7,920) (2,051) (158) (262) (555) 1,490 (2,299) (8,486) 5,140 3,678 1,122 3,518 (3,985) (1,380) 12,148 (33,004) (34,569) 24,052 (3,406) 99 16 (9,414) 3,780 (4) (54) 23 20,946 (2,431) (147) (9) (8,098) 11,656 53 (21) 29 (17,912) (12,591) Ørsted annual report 2022 Financial statements Consolidated financial statements | Consolidated statement of cash flows Consolidated statement of cash flows – continued 1 January – 31 December Note DKKm Proceeds from raising loans Instalments on loans Instalments on leases Coupon payments on hybrid capital Repurchase of hybrid capital Proceeds from issuance of hybrid capital Dividends paid to shareholders in Ørsted A/S 3.10 Transactions with non-controlling interests Net proceeds from tax equity partners Collateral posted in relation to trading of derivatives Collateral released in relation to trading of derivatives Cash flows from financing activities Total net change in cash and cash equivalents 5.4 Cash and cash equivalents at 1 January Total net change in cash and cash equivalents Exchange rate adjustments of cash and cash equivalents 5.4 Cash and cash equivalents at 31 December 76 2022 37,090 (22,595) (582) (529) (1,945) 3,693 (5,252) 1,170 (523) (48,885) 52,143 13,785 7,797 8,614 7,797 (236) 16,175 2021 14,582 (4,435) (520) (430) (2,971) 7,327 (4,830) 332 289 (23,034) 17,082 3,392 2,949 5,210 2,949 455 8,614 Accounting policies ‘Cash flows from operating activities’ are determined using the indirect method as operating profit (loss) before depreciation, amortisation, and impair- ment losses adjusted for changes in operating items without cash flow effect. Trade payables relating to purchases of intangible assets, and property, plant, and equipment are not recognised in change in trade payables. ‘Change in tax equity partner liabilities’ relates to cash contributions from tax equity partners and repayment hereof through production tax credits (PTCs) and other tax attributes to tax equity partners. See also note 3.8 ‘Tax equity liabilities’. ‘Cash flows from investing activities’ comprise payments in connection with the purchase and sale of non-current assets and enterprises as well as the pur- chase and sale of securities that are not recognised as cash and cash equivalents. ‘Cash flows from financing activities’ comprise changes in the size or com- position of equity and loans, including instalments on leases and net proceeds related to interest-bearing tax equity liabilities. Proceeds from the raising of short-term repo loans are presented net. Cash flows in currencies other than the functional currency are translated at the average exchange rates for the month in question, unless these differ significantly from the rates at the transaction date. Ørsted annual report 2022 Financial statements Notes | 1. Basis of reporting 1. Basis of reporting 1.1 Significant changes and events The financial position and performance of Ørsted was particularly affected by the following events and transactions during 2022. Energy prices Acquisitions Divestments Impairment Ostwind In September, we completed the acquisition of the onshore renewable energy company Ostwind. The acquisition expands our European onshore portfolio into Germany and France with more than 1.5 GW of development pipeline projects. See note 3.1 ‘Acquisitions of enterprises’. Volatility in energy prices 2022 has been a year with unusual market conditions, not least very volatile energy prices and a substantial in- crease in inflation. This has led to adverse impacts on our earnings from volume-related overhedging, ineffectiveness related to inflation-based contracts with partners, and ineffective hedges. As a response to the unintend- ed impacts from hedges, we have established and are in the process of implementing a new risk management frame- work to reduce the volatility from financial instruments and bring back the inherent predictability of earnings that our contracted and regulated activities possess. See note 6.1 ‘Market risk policy’. Borkum Riffgrund 3 In March, we completed the 50 % divestment of our offshore wind farm Borkum Riffgrund 3 in Germany. The transaction resulted in proceeds of DKK 1.9 billion and a gain of DKK 1.6 billion. See note 2.6 ‘Other operating income and expenses’ and note 3.3 ‘ Intangible assets, and property, plant, and equipment’. Sunrise Impairment losses amounted to DKK 2.5 billion in 2022, was related to our Sunrise Wind project in the US, and was driven by supply chain bottlenecks, cost inflation, and higher costs of capital. See note 3.3 ‘Intangible assets, and property, plant, and equipment’. Hornsea 2 In September, we completed the 50 % divestment of our offshore wind farm Hornsea 2 in the UK. The transaction resulted in proceeds of DKK 22.2 billion and a gain of DKK 9.4 billion. See note 2.6 ‘Other operating income and expenses’ and note 3.3 ‘Intangible assets, and property, plant, and equipment’. US project portfolio In October, we closed our first-ever agreement to farm down a portfolio of four onshore projects, divesting a 50 % ownership stake in the onshore wind farms Lincoln Land Wind, Plum Creek Wind, and Willow Creek Wind and the solar farm Muscle Shoals with a total capacity of 862 MW geographically spread over four US states. The portfolio will still be fully consolidated after the divestment. The contribution received from the partner was recognised as interest- bearing debt in ‘Other payables’. See note 3.7 ‘Other receivables and other payables’. 77 For a detailed discussion about Ørsted’s performance and financial position, please refer to our management’s review. Ørsted annual report 2022 Financial statements Notes | 1.2 Basis of preparation 1.2 Basis of preparation This section provides an overall description of the accounting policies applied in our consolidated financial statements as well as the European Single Electronic Format (ESEF) reporting requirements. We provide a more detailed description of the accounting policies applied in the specific notes. Key accounting estimates and judgements as well as new and amended IFRS standards and interpretations are discussed in detail later in this note. Accounting policies The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU and further requirements in the Danish Financial State- ments Act (Årsregnskabsloven). Measurement basis The consolidated financial statements have been prepared on historical cost basis, except for derivatives, gas in non-Danish storage facilities, financial instruments in the trading portfolio, and carbon emission allowances in the trading portfolio, which are measured at market value. The accounting policies have been applied consistently in the financial year and for comparative figures. 78 Consolidation The consolidated financial statements comprise the financial statements of Ørsted A/S (the parent company) and subsidiaries controlled by Ørsted A/S. See more in note 7.4 ‘Company overview’. are accounted for as investments in joint ventures, unless the nature of the joint arrangement is considered a joint operation. See our key accounting judgement for ‘Consolidation method for partnerships’ in the next column. The consolidated financial statements have been prepared as a consolidation of the parent company’s and the individual subsidiaries’ financial statements, which have been prepared in accordance with the Group’s accounting policies. Intra- group income, expenses, shareholdings, balances, and dividends as well as realised and unrealised gains and losses arising from intra-group transactions are eliminated in our consolidated financial statements. Unrealised gains and losses resulting from transactions with associates and joint ventures are eliminated to the extent of our ownership interest. Enterprises are accounted for as associates if we hold or have the ability to exercise, directly or indirectly, 20-50 % of the voting rights and do not exercise control. However, we carry out a specific assessment of our ability to exercise influence, including our ability to influence financial and operational decisions and thus our return. Enterprises that satisfy the criteria for joint control Our shares in joint operations are recognised in the consolidated balance sheet through recognition of the Group’s own assets, liabil- ities, income, and expenses. The proportion- ate share of realised and unrealised gains and losses arising from intra-group transactions between fully consolidated enterprises and joint operations is eliminated. Foreign currency translation The financial statements are presented in million Danish kroner (DKKm), unless other- wise stated. Exchange differences arising between the exchange rate on the transaction date and on the date of payment are recognised in profit (loss) for the year as financial income or expenses. Foreign currency transactions are translated into the functional currency defined for each entity using the exchange rates prevailing at the transaction date. Receivables, payables, and other monetary items in foreign curren- cies are translated at the exchange rates on the balance sheet date. The difference Key accounting judgement Consolidation method for partnerships On establishment of partnerships and in connection with any restructuring of existing partnerships, we assess whether the structure is a joint arrangement under shared control. For joint ar- rangements, we subsequently assess whether they are joint ventures or joint operations. In assessing joint operations, we look at: – the corporate form of the operation – whether we are only entitled to the net profit (loss) or to income and expenses resulting from the operation. In addition, the fact that the parties buy or are assigned all output, for example the power generated, will lead to the structure being considered a joint opera- tion if we have joint control. Ørsted annual report 2022 The alternative performance measures most commonly presented in the Ørsted annual report are: – EBITDA and EBITDA excluding new partnerships funds from operations (FFO) – – adjusted interest-bearing net debt – – free cash flow (FCF) ROCE. Our definitions of the financial measures are included in note 7.3 ‘Alternative performance measures’. Financial statements Notes | 1.2 Basis of preparation between the exchange rate on the balance sheet date and on the date at which the receivable or payable arose is recognised in profit (loss) for the year as financial income or expenses. Financial statements of foreign subsidiaries, joint operations, associates, and joint ven- tures are translated into DKK at monthly av- erage exchange rates insofar as these do not deviate materially from the actual exchange rates at the transaction dates. Balance sheet items are translated at the exchange rates on the balance sheet date. All exchange differences are recognised in profit (loss) for the year, except for exchange differences arising on: – – translation of the opening equity of these entities at the exchange rates on the balance sheet date translation of the statements of compre- hensive income of these enterprises from ‘the average-for-the-month exchange rates’ to ‘the exchange rates on the balance sheet date’ – translation of balances accounted for as part of the total net investment against corresponding foreign exchange gains (losses) on the net investment. The above types of exchange differences are recognised in ‘Other comprehensive income’. Such exchange rate adjustments are divided between the equity of the parent company and the equity of the non-controlling interests. On full or partial divestment of the net investment, the accumulated exchange rate adjustments are recognised as follows: – Disposal resulting in loss of control: The accumulated exchange rate adjust- ments, including any associated hedges, are recognised in the profit (loss) for the year if a foreign exchange gain (loss) is realised by the selling enterprise. Any foreign exchange gain (loss) is transferred to the item in which the gain (loss) from the disposal is recognised. The part of the foreign currency translation reserve that relates to non- controlling interests is not transferred to profit (loss) for the year. – Disposal not resulting in loss of control: A proportionate share of the foreign currency translation reserve is transferred from the parent company shareholders’ share of equity to the minority share- holders’ share of equity. iXBRL reporting We are required to file our annual report in the European Single Electronic Format (‘ESEF’) using the XHTML format and to tag the consolidated financial statements in- cluding notes using Inline eXtensible Business Reporting Language (iXBRL). The iXBRL tags comply with the ESEF taxonomy. Where a financial statement line item is not defined in the ESEF taxonomy, an extension to the taxonomy has been created. The annual report submitted to the Danish Financial Supervisory Authority consists of the XHTML document together with certain technical files, all included in a ZIP file named Orsted-2022-12-31-en.zip. Alternative performance measures We present financial measures in the con- solidated financial statements which are not defined according to IFRS. We use these alternative performance measures (APM) as we believe that these financial measures provide valuable information to our stake- holders and management. The financial measures should not be con- sidered a replacement for the performance measures as defined under IFRS, but rather as supplementary information. – translation of the portion of loans and derivatives that has been entered into to hedge the net investment in an enterprise, and that provides an effective hedge Repayment of balances that are considered part of the net investment does not consti- tute a partial disposal of the subsidiary. The alternative performance measures may not be comparable to similar titled measures presented by other companies, as the defini- tions and calculations may be different. 79 Ørsted annual report 2022 Financial statements Notes | 1.2 Basis of preparation Note 1.2 2.6 3.1 3.3 3.8 3.9 4.2 6.1 Basis of preparation Consolidation method for partnerships Key accounting estimates and judgements Other operating income and expenses Variable selling prices related to divestments of offshore wind farms and offshore transmission assets Classification of divestment Acquisition of enterprises Purchase price allocation in business combinations Intangible assets, and property, plant, and equipment Key assumptions in impairment tests Tax equity liabilities Recognition of tax equity partnerships Provisions and contingent liabilities Assumptions for provisions Tax on profit (loss) for the year Recognition of income taxes Market risk policy Valuation of long-term power purchase agreements Effectiveness of hedge reserve Estimate/ judgement Judgement Estimate Judgement Estimate Estimate Judgement Estimate Estimate Estimate Judgement Potential impact from accounting estimates and judgements Implementation of new and changed accounting standards and interpretations The International Accounting Standards Board (IASB) has issued amended standards that are effective for the first time in 2022. None of them required a change in our accounting policies. New standards and interpretations IASB has issued new or amended accounting standards and interpretations that have not yet become effective and have consequently not been implemented in the consolidated financial statements for 2022. Ørsted expects to adopt the accounting standards and inter- pretations as they become mandatory. Key accounting estimates and judgements The use of reasonable estimates and judge- ments is an essential part of the preparation of the consolidated financial statements. Given the uncertainties inherent in our business activities, we make a number of estimates and judgements. The estimates and judgements are based on assumptions concerning future developments, which affect our application of accounting policies and the reported amounts of our assets, liabilities, sales, costs, cash flows, hedge reserve, and related disclosures. Actual amounts may differ from the amounts estimated and judgements made, as more detailed information becomes available. The new or amended standards or interpre- tations are not expected to have a signifi- cant impact on our consolidated financial statements. We regularly reassess these estimates and judgements based on, among other things, historical experience, the current situation 80 in the financial markets, and a number of other relevant factors, i.e. the updates in the annual estimated production. Changes in estimates are recognised in the period in which the estimate in question is revised. ↑ Key accounting estimates and judgements and their level of potential impact on the consolidated financial statements. The impact relates to objectivity and business practice. Very objective/market-conforming Objective/partially conforming Partially subjective/partially distinctive Subjective/distinctive for Ørsted Accounting estimates, judgements, and assumptions which may entail a risk of material adjustments in subsequent years are listed in the table above. In addition, we make judgements when we apply the accounting policies. Reference is made to the specific notes for further information on the key accounting estimates and judgements as well as the assumptions applied. Ørsted annual report 2022 Financial statements Notes | 2. Return on capital employed 2. Return on capital employed EBIT by segment 1 Percentage of DKK 19,794 million in 2022 Return on capital employed (ROCE) is a key ratio showing how profitable our business activities are. Our target is an average ROCE of approx. 11-12 % for the Group for the 2020-2027 period. Return on capital employed was 16.8 % in 2022. The increase of 2 percentage points compared to last year was attributable to a higher EBIT. See note 2.1 ‘ Segment information’. 51 % Offshore 39 % Bioenergy & Other 10 % Onshore EBITDA and EBIT DKKbn Return on capital employed DKKbn EBITDA 32.1 bn EBIT1 19.8 bn 28.5 23.1 24.3 16.2 19.0 11.6 16.6 9.0 2018 2019 2020 2021 2022 1 EBIT of DKK 19,794 million is calculated as EBIT for reportable segments. 16.8 % Return on capital employed totalled 16.8 % in 2022 against 14.8 % in 2021. 2022 2021 2020 2019 2018 16.8 14.8 8.3 12.2 30.2 81 Ørsted annual report 2022 Financial statements Notes | 2.1 Segment information 2.1 Segment information Offshore DKKm Revenue EBITDA Gross investments Number of employees 87,121 19,569 26,710 4,038 Primary activities Development, construction, ownership, and oper- ation of offshore wind farms in the UK, Germany, Denmark, Poland, the Netherlands, the US, and Taiwan as well as development of renewable hy- drogen and green fuels in Europe and e-methanol on the US Gulf Coast. Onshore DKKm Revenue EBITDA Gross investments Number of employees 3,014 3,644 10,396 419 Geographical distribution Geographical revenue is broken down, as far as possible, by the customer’s geo- graphical location based on supply point. A significant part of our sales takes place via power exchanges and gas hubs in Europe, whose physical locations do not reflect the geographical locations of our customers. When breaking down these sales by geographical location, we use the physical locations of the exchange or hub since we do not know the physical loca- tion of our customers in all cases. Revenue DKKm 2022 (2021) DKK 132,277 million The UK 59,132 (41,323) Denmark 38,471 (19,839) Germany 14,653 (7,818) NL Taiwan The US Other Ireland 9,943 (5,916) 5,439 (831) 2,619 (1,296) 1,083 937 (420) (230) No single customer accounted for more than 10 % of our consolidated revenue in 2022 or 2021, respectively. Intangible assets, and property, plant, and equipment DKKm 2022 (2021) Accounting policies Our operating segments are consistent with our internal reporting to our chief operating decision maker, the Group Executive Team. The operating segments are managed primarily on the basis of EBITDA and investments. Financial income, financial expenses, depreciation, amortisations, and tax are allocated to the operating segments, while we manage them at Group level. Segment income and segment expenses are those items that, in our internal management reporting, are directly attributable to individual segments or can be indirectly allocated to individual segments on a reliable basis. Primary activities Development, construction, ownership, and oper- ation of onshore wind and solar farms in the US and in Europe, including integrated storage. Non-current assets are broken down geographically, based on the physical locations of the assets. Bioenergy & Other DKKm Revenue EBITDA Gross investments Number of employees 46,243 8,619 267 988 Primary activities Generation of heat and power and delivery of ancillary services from CHP plants in Denmark, optimisation of our gas portfolio, and sale of green certificates, power, and gas in wholesale and B2B markets. 82 DKK 181,694 million The US 68,352 (51,045) The UK 48,963 (63,331) Taiwan 24,476 (16,234) Germany 15,141 (11,544) Denmark 12,182 (9,707) Ireland 5,017 (4,930) NL Poland France Other 4,722 (4,904) 1,479 (1,221) 1,357 5 (0) (23) Revenue, intangible assets as well as property, plant, and equipment are presented based on the locations of our customers and assets as well as the exchanges on which we trade. Ørsted annual report 2022 The column ‘Other activities/eliminations’ primarily covers the elimination of inter- segment transac- tions. It also includes income and costs, assets and liabilities, investment activity, taxes, etc., handled at Group level. 1 Including the elimin ation of other activities, the total elimination of intra-group revenue amounts to DKK -7,296 million, which primarily relates to our Shared Functions services as well as our B2B business activities. Financial statements Notes | 2.1 Segment information 2022 income statement DKKm External revenue Intra-group revenue Revenue Cost of sales Employee costs and other external expenses Gain (loss) on disposal of non-current assets Additional other operating income and expenses Share of profit (loss) in associates and joint ventures EBITDA Depreciation and amortisation Impairment losses Operating profit (loss) (EBIT) Key ratios Offshore Onshore Bioenergy & Other Reportable segments 78,970 8,151 87,121 3,014 - 3,014 50,279 (4,036) 46,243 132,263 4,115 136,378 (66,398) (57) (34,748) (101,203) (8,410) 10,864 (3,716) 108 19,569 (7,006) (2,529) 10,034 (1,831) 43 2,472 3 3,644 (1,644) - 2,000 (2,370) (12,611) (22) (487) 3 8,619 (859) - 7,760 10,885 (1,731) 114 31,832 (9,509) (2,529) 19,794 Intangible assets, and property, plant, and equipment 114,130 57,320 8,868 180,318 Equity investments and non-current receivables Net working capital, capital expenditures Net working capital, work in progress Net working capital, tax equity Net working capital, other items Derivatives, net Decommissioning obligations Other provisions Tax, net Other receivables and other payables, net Capital employed at 31 December Return on capital employed (ROCE), % Cash flows from operating activities Gross investments Divestments Free cash flow (FCF) 83 605 (5,050) 1,430 100 (572) 41 - (15,157) 9,093 (25,914) (10,233) (1,910) 5,598 2,192 89,941 85 (7,604) (1,769) (39) (3,938) (4) 28,463 124 (43) - - 873 99 (2,074) (1,520) (1,119) 3 829 (5,665) 1,471 (15,157) 10,051 (33,419) (14,076) (3,469) 541 2,191 5,211 123,615 5,272 2,509 (26,710) (10,396) 25,451 4,013 56 (7,831) 2,622 (267) (4) 2,351 10,403 (37,373) 25,503 (1,467) Other activities/ eliminations Total 14 132,277 (4,115) 1 (4,101) 4,040 284 - 2 - 225 (245) - (20) 1,376 167 - - - 1,877 1,097 - (2,161) 1,068 (936) 2,488 1,521 (74) 133 1,580 - 132,277 (97,163) (12,327) 10,885 (1,729) 114 32,057 (9,754) (2,529) 19,774 181,694 996 (5,665) 1,471 (15,157) 11,928 (32,322) (14,076) (5,630) 1,609 1,255 126,103 16.8 11,924 (37,447) 25,636 113 Ørsted annual report 2022 Financial statements Notes | 2.1 Segment information 2021 income statement DKKm External revenue Intra-group revenue Revenue Cost of sales Employee costs and other external expenses Gain (loss) on disposal of non-current assets Additional other operating income and expenses Share of profit (loss) in associates and joint ventures EBITDA Depreciation and amortisation Impairment losses Operating profit (loss) (EBIT) Key ratios The column ‘Other activities/eliminations’ primarily covers the elimination of inter- segment transac- tions. It also includes income and costs, assets and liabilities, investment activity, taxes, etc., handled at Group level. 1 Including the elimin ation of other activities, the total elimination of intra-group revenue amounts to DKK -9,161 million, which primarily relates to our Shared Functions services as well as our B2B business activities. Offshore Onshore Bioenergy & Other Reportable segments 42,350 8,441 50,791 (33,922) (7,171) 7,920 424 (21) 18,021 (5,993) (69) 11,959 1,018 (23) 995 (26) (1,071) - 1,448 3 1,349 (903) (60) 386 34,263 (1,873) 32,390 (25,612) (2,039) - 7 1 4,747 (831) - 3,916 77,631 6,545 84,176 (59,560) (10,281) 7,920 1,879 (17) 24,117 (7,727) (129) 16,261 Other activities/ eliminations Total 42 77,673 (6,545) 1 (6,503) 6,450 232 - - - 179 (245) - (66) - 77,673 (53,110) (10,049) 7,920 1,879 (17) 24,296 (7,972) (129) 16,195 Intangible assets, and property, plant, and equipment 108,419 44,923 8,259 161,601 1,338 162,939 Assets classified as held for sale, net Equity investments and non-current receivables Net working capital, capital expenditures Net working capital, work in progress Net working capital, tax equity Net working capital, other items Derivatives, net Decommissioning obligations Other provisions Tax, net Other receivables and other payables, net Capital employed at 31 December Return on capital employed (ROCE), % Cash flows from operating activities Gross investments Divestments Free cash flow (FCF) 84 - 460 (8,294) 5,948 - 44 (581) - - (13,268) 9,680 (23,289) (6,155) (3,106) 6,157 (4,006) 85,814 (74) (2,692) (1,302) (11) (4,390) (15) 22,634 860 134 (38) - - 1,031 (6,819) (1,394) (1,577) 1,492 2 860 638 (8,913) 5,948 (13,268) 10,637 (32,800) (8,851) (4,694) 3,259 (4,019) 1,950 110,398 (898) 4,467 (23,416) (15,525) 21,595 (2,719) - (11,058) 7,593 (274) (178) 7,141 11,162 (39,215) 21,417 (6,636) - 190 - - - 183 (195) - (2,343) 585 (740) (982) 986 (92) 102 996 860 828 (8,913) 5,948 (13,268) 10,820 (32,995) (8,851) (7,037) 3,844 (4,759) 109,416 14.8 12,148 (39,307) 21,519 (5,640) Ørsted annual report 2022 Financial statements Notes | 2.2 Revenue 2.2 Revenue Revenue DKKm Generation of power Sale of power Revenue from construction of offshore wind farms and transmission assets Generation and sale of heat and steam Sale of gas Distribution and transmission O&M and other services Total revenue from customers Government grants Miscellaneous revenue Total revenue Offshore Onshore Bioenergy & Other Other activities/ eliminations Offshore Onshore Bioenergy & Other Other activities/ eliminations 2,121 12,701 - - - - - - 31 5,936 (4,099) - 3,002 20,954 277 733 - - - (5) (45) 15,149 52,252 11,640 - - - 2,403 81,444 4,831 846 2022 total 29,971 54,089 11,640 3,002 20,954 272 3,122 8,544 26,524 6,044 - - - 2,639 43,751 7,655 (615) 933 - - - - - - 6,376 5,474 - 2,745 16,270 326 241 - (6,541) - - - - (37) 2021 total 15,853 25,457 6,044 2,745 16,270 326 2,843 2,152 43,603 (4,149) 123,050 862 - 493 2,147 - 48 6,186 3,041 87,121 3,014 46,243 (4,101) 132,277 50,791 933 179 (117) 995 31,432 (6,578) 69,538 700 258 - 75 8,534 (399) 32,390 (6,503) 77,673 Timing of revenue recognition from customers At a point in time Over time Total revenue from customers Revenue from sale of goods and services Revenue from sale of goods Revenue from sale of services Total revenue 66,693 14,751 81,444 84,844 2,277 87,121 2,152 - 2,152 26,564 17,039 43,603 (4,149) - 91,260 31,790 (4,149) 123,050 3,001 45,837 (4,044) 129,638 13 406 (57) 2,639 3,014 46,243 (4,101) 132,277 35,441 8,310 43,751 48,650 2,141 50,791 933 - 933 14,090 17,342 31,432 (6,578) - (6,578) 992 31,701 (6,475) 3 689 (28) 995 32,390 (6,503) 43,886 25,652 69,538 74,868 2,805 77,673 The timing of transfer of goods or services to customers is categorised as follows: ‘At a point in time’ mainly comprises: – sale of gas or power in the market, e.g. North Pool, TTF, NBP – sale of transmission assets from offshore wind farms. ‘Over time’ mainly comprises: – construction agreements for offshore wind farms and transmission assets – long-term contracts with customers to deliver gas, heat, or power. 85 Revenue for the year increased by 71 % to DKK 132,277 million in 2022. The increase was primarily due to the significantly higher power and gas prices across all markets and more assets in operation. Revenue from construction agreements was DKK 11,640 million. The increase of DKK 5,596 million was mainly related to the divestment of 50 % of the off- shore transmission assets at Hornsea 2 in September and the construction of Greater Changhua 1 for partners. Income from government grants decreased significantly in 2022 due to power prices being above subsidy prices, leading to a lower subsidy per MWh produced. Backlog Order backlog for the construction of wind farms and offshore transmission assets. Order backlog DKKm 31 December Within one year In more than one year 2022 5,989 43 % 57 % 2021 5,989 100 % 0 % The transaction price allocated to the remaining performance obligation. Ørsted annual report 2022 Financial statements Notes | 2.2 Revenue Accounting policies Revenue is measured based on the consideration specified in a contract with a customer (transaction price) and excludes amounts collected on behalf of third parties, i.e. VAT. We recognise revenue when we transfer control over a product or service to a customer or a partner. the customer at a variable price, are considered one performance obligation with multiple deliveries to be satisfied over time. For such contracts and for long- term agreements on selling power at a fixed price, we recognise revenue in the amount up to which we have a right to invoice. After signing the construction agreement, we carry out an assessment determining when the wind farm is expected to be completed. We calculate the size of the variable payment on this basis. We only recognise the variable fee when it is highly probable that a subse- quent reversal will not take place. If a part of the transaction price is variable, i.e. bonus payments, incentive payments for unmissed deadlines, etc., the variable consideration is recognised in revenue when it is highly probable that the revenue will not be reversed in subsequent periods. We adjust the transaction price for the time value of money if the payments exceed twelve months. Generation of power Generation of power is the sale of power produced at our own wind farms, solar farms, and power stations as well as the sale of ancillary services. We recognise revenue as the power is produced, since this is when delivery to the customers occurs. Fees for having CPH plants on standby and/or ready to increase or decrease the generation of power to balance the demand and supply in the system is con- sidered one performance obligation fulfilled over time. The consideration for the power is due when the actual power is delivered to the customer. Revenue from construction of offshore wind farms Revenue from construction of offshore wind farms includes development and construction. The construc- tion agreements cover the construction phase from de- sign to delivery of an operational asset. The agreement consists of two performance obligations: – Offshore wind farms. – Offshore transmission assets, if applicable. The construction agreements cover our partners’ shares of the construction of the wind farm and off- shore transmission assets, if applicable. If our contracts include multiple performance obligations, the transac- tion price will be allocated to each performance obli- gation based on the stand-alone selling prices. Where these are not directly observable, they are estimated based on the expected cost-plus margin. Our partner pays the fixed consideration based on a payment schedule. The payment schedule is deter- mined and based on the expected progress of the construction and transfer of control to the customer. Generation and sale of heat and steam Heat is sold under long-term heat contracts and recog- nised when the heat is delivered to our customer. The heat customer makes a prepayment to finance the majority of our CAPEX associated with the biomass conversion of the CHP plant. The prepay- ment is recognised as a contract liability, and it is also recognised as revenue in step with the transfer of heat to the customer. Payment for the sale of heat consists of fixed costs associated with operations and maintenance of a CHP plant, fuel costs for the generation of heat, and a finan- cial return. The consideration is due when delivered. The consideration for the power is due when the actual power is delivered to the customer. Sale of power Revenue from sale of power sourced from other producers. This includes the sale of power sourced from investor power purchase agreements, third-party balancing contracts, and other sales contracts. The sale is recognised when the power is delivered to our customer. Sales contracts for a fixed amount of power at a variable price, or where we are exclusive suppliers to We recognise revenue over time, using an input method to measure progress towards complete satisfaction of the performance obligation because the customer gains control of the offshore wind farm during the construction process. The input method reflects the ongoing transfer of control. Sale of gas Sale of gas is our gas sourced from other producers, and it is recognised when the gas is transferred to our buyer. The transfer of control occurs either when the gas is injected into the distribution system or delivered to the customer. The consideration for the construction of an offshore wind farm consists of a fixed fee and a relatively minor variable fee, depending on when the wind farm can be put into operation. The consideration for an offshore transmission asset is a fixed fee. Sales contracts for a fixed amount of gas at a variable price, or where we are exclusive suppliers to the customer at a variable price, are considered one performance obligation with multiple deliveries to be satisfied over time. For such contracts, we recognise revenue in the amount up to which we have a right to invoice. Some long-term gas sales contracts include clauses which give the right to renegotiate the fixed sales prices. Expectations for the outcomes of renegoti- ations are not included in revenue before we know the outcome of the individual renegotiations. The consideration for the gas is due when the gas is injected into the distribution system or delivered to the customer. Distribution and transmission Fees for distribution and transmission of oil is recog- nised when the oil is delivered to the buyer, or when the capacity is made available. Revenue is calculated as the amount to which we are entitled when the service is delivered to the customer, and consideration is payable when invoiced. O&M and other services Revenue from providing services is recognised over time as our customer simultaneously receives and consumes the benefits provided. For fixed-priced contracts, revenue is recognised based on the actual service rendered at the end of the reporting period as a proportion of the total services to be rendered. This is determined based on the actual labour hours spent relative to the total labour hours expected. Fixed-price contracts are invoiced on a monthly basis, and consideration is payable when invoiced. Variable fee services are due after the services are rendered. 86 Ørsted annual report 2022 Financial statements Notes | 2.3 Cost of sales Offshore Onshore Bioenergy & Other Other activities/ eliminations Offshore Onshore Bioenergy & Other Other activities/ eliminations - 54,762 - - - - - - 27 - 30 57 19,676 6,172 3,323 2,955 1,507 - 1,115 34,748 - (4,014) - - (50) - 24 2022 total 19,676 56,920 3,323 2,955 3,550 9,570 1,169 - 26,042 - - 1,627 6,175 78 13,944 4,720 3,272 1,060 2,062 - 554 - (6,450) - - (44) - 44 - - - - 13 - 13 26 (4,040) 97,163 33,922 25,612 (6,450) 53,110 Accounting policies Ørsted constructs offshore transmission assets in the UK which are required to be divested to third parties due to EU unbundling regulations. The construction costs are presented as inventories and transferred to cost of sales when the asset is divested to either a farm-down partner or to the buyer appointed by OFGEM. 2021 total 13,944 24,312 3,272 1,060 3,658 6,175 689 2.3 Cost of sales Cost of sales DKKm Gas Power including certificates Biomass Coal Distribution and transmission costs 2,066 Costs for construction of offshore wind farms and transmission assets Other cost of sales Total 9,570 - 66,398 Cost of sales increased by 83 % to DKK 97,163 million in 2022. The increase was primarily due to the significantly higher gas and power prices across all markets, the divestment of 50 % of the offshore trans mission asset at Hornsea 2, and the construction of Greater Changhua 1 for partners in 2022. The increase in 2022 was partly offset by a reduction in gas volumes sold and the divestment of the offshore transmission asset at Hornsea 1 in 2021. 87 Ørsted annual report 2022 Financial statements Notes | 2.4 Government grants / 2.5 Research and development expenditures 2.4 Government grants 2.5 Research and development expenditures Government grants DKKm Government grants recognised in profit (loss) for the year under revenue Government grants recognised in profit (loss) for the year under other operating income Government grants recognised in the balance sheet Government grants recognised for the year 2022 6,186 28 (28) 6,186 2021 8,534 23 (23) 8,534 Feed-in tariffs from our Irish, Dutch, and German wind farms are also recognised as government grants. Income from government grants decreased significantly in 2022 due to power prices being above subsidy prices, leading to a lower subsidy per MWh produced. Expensed research and development expenditures 2022 DKKm Research Development Total Expensed research and development expenditures 2021 DKKm Research Development Total Offshore Onshore Bioenergy & Other 122 1,736 1,858 82 1,924 2,006 - 266 266 - 141 141 - 10 10 - 15 15 Total 122 2,012 2,134 82 2,080 2,162 Accounting policies Accounting policies Government grants comprise grants for environmentally sustainable power genera- tion, grants for the funding of development projects, investment grants, etc. Government grants are recognised when there is reasonable assurance that the grants will be received. As grants for power generation are intended as a compensation for the price of power, we system atically recognise the grants under revenue in step with the power generation and thus the related revenue. Research costs are costs incurred to find new or improve existing technologies (e.g. improving offshore foundations, optimising blade stability and performance for wind farms, developing new ways of converting renewable electrons to renewable molecules and synthetic fuels). Research costs are recognised in the income statement as incurred. Development costs primarly comprise salaries as well as internal and external costs which can be directly or indirectly attributed to design and de- velopment of offshore and onshore wind farms, the Renescience Northwich plant, P2X produc- tion facilities, and energy storage facilities. Development costs are expensed until the capitalisation criteria are met. Development costs incurred after that are capitalised as ‘Assets under construction’. The transmission system operator in Denmark administers subsidies for environ- mentally sustainable power generation, including biomass and offshore wind farms. We treat the subsidies as a government grant, as it is paid by the Danish state. In the UK, we receive subsidies under two schemes: contracts for difference (CfD) and the Renewable Obligation scheme (renew able obligation certificate (ROC) regime). The Burbo Bank Extension, Walney Extension, Hornsea 1, and Hornsea 2 off- shore wind farms are under the CfD regime, while our other UK offshore wind farms as well as our Renescience plant are under the ROC regime. We treat the payments from the schemes as government grants. 88 Ørsted annual report 2022 Financial statements Notes | 2.6 Other operating income and expenses 2.6 Other operating income and expenses Operating income DKKm Gain on divestment of assets US tax credits and tax attributes Other compensation Miscellaneous operating income Total other operating income Other operating expenses DKKm Ineffective hedges, etc. 1 Loss on divestment of assets Miscellaneous operating expenses Total other operating expenses 2022 11,018 2,556 175 370 2021 8,146 1,382 429 228 14,119 10,185 4,591 133 239 4,963 - 226 160 386 1 In 2021, ineffective hedges, etc., was DKK 1,074 million, presented as revenue. Other operating income In 2022, other operating income was DKK 14,119 million, which was DKK 3,934 million higher than in 2021. The increase was mainly driven by gain on divestments of assets, primarily the 50 % farm-downs of Hornsea 2 and Borkum Riffgrund 3. In 2021, gain on divestment of assets was related to the 50 % farm-downs of Borssele 1 & 2 and Greater Changhua 1. The increase in ‘US tax credits and tax attributes’ was mainly due to commis- sioning of new onshore wind farms in 2021, which have had full impact in 2022, and commissioning of new onshore wind and solar farms in 2022. Other operating expenses ‘Ineffective hedges’ included volume- ineffec tive hedges as a consequence of lower- than-expected offshore generation, resulting in us having hedged too large volumes. Furthermore, it included other hedges, which we cannot document as being ‘effective’ from a hedge accounting perspective and therefore have recognised in the income statement. ‘Loss on divestment of assets’ was primarily related to M&A transaction costs. 89 Accounting policies Key accounting estimate Gains from farm-downs of ownership interests in wind farms are recognised on the divestment date as other operating income.. Gains for future construction of the partner’s share of the wind farm are recognised over time in the income statement in step with the construction. See notes 2.2 ‘Revenue’ and 3.5 ‘Contract assets and liabilities’. The accounting policies for ‘US tax credits and tax attributes’ income are described in note 3.8 ‘Tax equity liabilities’. Losses from our market trading activities are presented as other operating expenses under 'Ineffecive hedges, etc.' Divestment of ownership interests in our offshore wind farms When we divest an ownership interest in an off- shore wind farm to a partner, we typically also enter into agreements on the future operation and construction of the offshore wind farm. Contracts in connection with a divestment are typically agreements on: – the sale of shares (divestment of assets) (SPA) – the future construction of the offshore wind farm (construction agreements or construc- tion management agreements, if not in operation) – the future operation of the offshore wind farm (O&M agreements). Variable selling price related to divestments of offshore wind farms and offshore transmission assets When we divest an ownership interest in an off- shore wind farm and an offshore transmission asset to a partner, we consider all terms and activities in the contracts in order to determine the transaction price. If the consideration includes a variable amount, we estimate the consideration to which we are entitled in exchange for transferring the asset, the wind farm, and the transmission asset to our partner. The variable considerations are estimated at contract inception based on future outcome of events, e.g.: – the divestment price of offshore transmission asset through a competitive tender process – the impact on production from future wind farms – the winning bid of the tender revenue stream through a competitive tender process. We consider ‘the most likely amount’ to provide the most appropriate estimate of the expected variable consideration. Key accounting judgement Classification of divestment When we divest ownership interests in an offshore wind farm, we carry out an individual assessment, determining whether the divest- ment qualifies as a divestment of an enterprise or a divestment of assets. We have typically assessed that the offshore wind farms do not constitute an enterprise, as no employees are transferred, and processes are transferred to a limited extent only. Ørsted annual report 2022 Financial statements Notes | 2.7 Employee costs 2.7 Employee costs Employee costs DKKm Wages, salaries, and remuneration Share-based payment Pensions Other social security costs Other employee costs Employee costs before transfer to assets Transfer to assets Total employee costs Salaries and remuneration for the Group Executive Team and the Board of Directors Executive Board 1 Other members of the Group Executive Team 2 DKK 000 Fixed salary Short-term cash-based incentive scheme Share-based payment Pension, incl. social security and benefits Short-term retention-dependent purchase price related to the acquisition of Lincoln Clean Energy Salary in notice period Severance payment Total 2022 2021 2022 2021 30,632 31,250 20,337 15,362 6,454 3,989 860 - 14,553 3 9,270 65,758 6,996 2,497 709 - - - 4,402 2,338 4,521 - 693 4,793 4,927 262 4,129 2,352 4,907 - 2022 5,510 32 430 233 92 6,297 (1,019) 5,278 2022 57,776 10,856 6,327 5,381 - 15,246 14,063 2021 4,603 26 357 191 108 5,285 (996) 4,289 Total 2021 52,918 11,923 2,759 4,838 2,352 4,907 - Board of Directors 2022 6,807 2021 6,306 - - - - - - - - - - - - Pension plans and number of employees Pension plans are defined-contribution plans that do not commit Ørsted beyond the amounts contributed. In 2022, our average number of employees was 7,428 (2021: 6,508). Remuneration of the Group Executive Team The remuneration of the Group Executive Team is based on a fixed salary, including personal benefits, such as a company car, free telephone, etc., a variable salary, and share-based payment. The non-executive members of the Group Executive Team also receive a pension. The members of the Board of Directors are paid fixed remuneration only for their work in Ørsted. In addition, Ørsted reimburses any travel expenses. For more details on the remuneration of the Executive Board, please refer to the remuneration report (orsted.com/remuneration2022). 41,452 37,084 31,939 6,807 6,306 109,649 79,697 1 The Executive Board consists of: Mads Nipper, Marianne Wiinholt (left on 8 April 2022), Daniel Lerup (joined on 8 April 2022), Henriette Fenger Ellekrog (joined on 1 November 2022), and Martin Neubert (left on 31 October 2022). Neil O’Donovan and Ingrid Reumert (joined on 1 November 2022), and Henriette Fenger Ellekrog (until 31 October 2022 when she joined the Executive Board). 2 Other members of the Group Executive Team in 2022 are: Oliva Breese (joined on 1 November 2022), Rasmus Errboe (joined on 1 November 2022), Anders Zoëga Hansen (joined on 1 November 2022), David Hardy (joined on 1 November 2022), Richard Hunter and Per Mejnert Kristensen (joined on 1 November 2022), 3 Including DKK 3,147 thousand related to share-based payments as, in accord- ance with the programme terms, Martin Neubert keeps his rights to the 2020, 2021, and 2022 grants. 90 Ørsted annual report 2022 Financial statements Notes | 2.8 Share-based payment 2.8 Share-based payment Market value of PSUs and key assumptions for valuation in executive share programme Time of granting 2022 Time of granting 2021 Time of granting 2020 Market value of 1 PSU Key assumptions Share price Average volatility rate Volatility, Ørsted Risk-free interest rate Expected term at time of granting 909 1,246 794 835 30.2 % 34.8 % 0.9 % 3 years 1,025 28.8 % 29.6 % 0.1 % 3 years 666 24.1 % 24.6 % (0.5) % 3 years Required number of locked-up shares relative to fixed salary CEO CFO, Chief HR Officer Other members of the Group Executive Team Other participants 75 % of fixed salary 50 % of fixed salary 25 % – 50 % of fixed salary 15 % – 25 % of fixed salary The figure shows the shareholding requirement in percentage of the participants’ fixed salary. A build-up period of up to five years is allowed. Executive share programme The Group Executive Team and a number of other senior executives participate in the share programme (approx. 120). As a condition for the granting of performance share units (PSUs), the participant must own a number of shares in Ørsted corresponding to a portion of the individual participant’s annual fixed salary. The portion depends on the employee category, and it makes up 75 % of our CEO’s fixed salary. See the table above for more information. The participants in the programme must invest in Ørsted shares prior to the first granting. A build-up period for the shareholding requirements of up to five years is allowed. If the participants fulfil the shareholding requirement at the time of granting, they will be granted a number of PSUs each year, representing a value of 15-20 % (15-40 % in the US) of the annual fixed salary on the date of granting. The granted PSUs have a vesting period of approximately three years. Then, each PSU entitles the holder, without payment, to receive a number of shares corresponding to 0-200 % of the number of PSUs granted. The vesting is conditional upon continued 91 employment. Assuming no share price development since the grant, the value would correspond to 0-30 % or 0-40 % (0-80 % in the US) of the fixed salary on the date of grant. The final number of shares for each participant will be determined on the basis of the total shareholder return delivered by Ørsted, benchmarked against ten comparable European energy companies. The highest rate (200 %) will be triggered if Ørsted’s results, measured as the total return to shareholders, outperform those of the com parable companies. For each lower ranking, the number of shares granted will fall by 20 percentage points. If, for example, Ørsted ranks third, the participants will be entitled to 160 % of the target. If Ørsted ranks 11 in the comparison, no shares will be granted to the participants. The right to shares is conditional upon continued employment. Retention share programme The target group for the share-based reten- tion agreements will typically be employees responsible for vital, long-term projects. The use of these share-based retention agreements will be limited to 25 concurrent agreements with an individual time frame of up to five years. Members of the Executive Board (CEO, CFO, and Chief HR Officer) cannot be granted such retention agreements. The number of retention share units (RSUs) to be granted will be determined on the basis of the price of Ørsted’s shares at the time of the grant and will be limited to an amount corresponding to a maximum of six months’ base pay for the employee in question. At vesting, each RSU will entitle the employee to one Ørsted share free of charge. However, the total value of the shares to be received at vesting will be capped at a maximum of twelve months’ base pay for the employee in question. Accounting policies The share programme is classified as an equity-based programme as the programme is settled in shares. The market value of the PSUs/RSUs and the estimated number of PSUs granted are measured at the time of granting and recognised: – in the income statement under employee costs over the vesting period – as an offset in the balance sheet under equity over the vesting period. The valuation of the PSUs/RSUs and the estimate of the number of PSUs/RSUs expected to be granted are carried out as a probability simulation based on Ørsted’s expected total shareholder return relative to ten comparable European energy compa- nies. The expect ations are factored into the market value and are not adjusted subse- quently. The participants are compensated for any dividend payments by receiving additional PSUs/RSUs. Ørsted annual report 2022 Financial statements Notes | 2.8 Share-based payment Maximum number of outstanding shares at 31 December '000 Time of granting 1 April 2019 1 April 2020 1 April 2021 1 April 2022 Share retention programme Maximum number of outstanding shares at 31 December Development in maximum number of outstanding shares '000 Maximum number of outstanding shares at 1 January Compensation for dividends paid (2019, 2020, 2021, and 2022 programmes) Transfer between categories Exercised (2019 programme) Exercised (2018 programme) Granted (2022 programme) Granted (2021 programme) Cancelled (2022 programme) Cancelled (2021 programme) Cancelled (2020 programme) Cancelled (2019 programme) Share retention programme Maximum number of outstanding shares at 31 December (DKKm) Market value of share programme at the time of granting Maximum market value of share programme at 31 December The maximum market value of the share programme at 31 December is based on the assump- tion that the participants receive the maximum number of shares (i.e. 200 % of the granted PSUs/ RSUs). This requires that Ørsted delivers the highest shareholder return, benchmarked against ten comparable companies. The share price at the time of exercising in 2022 was DKK 793. 92 2022 in % of share capital Market value of shares at granting, DKK million Years until expiry as of 2022 - 0.02% 0.02% 0.02% 0.00% 0.06% - 25 33 47 9 114 - 0.3 1.3 2.3 Other members of the Group Executive Team Executive Board Senior executives Other employees 2022 2021 - 7 11 18 - 36 21 1 10 (10) - 14 - - - - - - 36 18 23 - 5 6 11 2 24 13 - 11 (6) - 6 - - - - - - 24 12 15 - 51 36 73 - 160 181 3 (19) (68) - 81 - (1) (6) (11) - - 160 76 101 - - - - 13 13 19 - (2) - - - - - - - - (4) 13 8 8 - 63 53 102 15 233 234 4 - (84) - 101 - (1) (6) (11) - (4) 233 114 147 83 73 59 - 19 234 300 2 - - (107) - 66 - (7) (10) (9) (1) 234 99 198 Ørsted annual report 2022 Financial statements Notes | 3. Capital employed 3. Capital employed Our capital employed primarily relates to production assets, including assets under construction. We monitor investment projects closely, as a large part of our value is created in the development and construction phases. 126.1 bn Capital employed totalled DKK 126,103 million on 31 December 2022 against DKK 109,416 million in 2021, mainly due to new investments. 37.4 bn Gross investments amounted to DKK 37,447 million in 2022 against DKK 39,307 million in 2021. 25.6 bn Cash flows from divestments totalled DKK 25,636 million in 2022 against DKK 21,519 million in 2021. 93 Capital employed by segment 1 % 2022 70 % Offshore Gross investments by segment % 2022 71 % Offshore 23 % Onshore 28 % Onshore 7 % Bioenergy & Other 1 % Bioenergy & Other Capital employed DKKm 2022 2021 Gross and net investments DKKm 2022 2021 Intangible assets, and property, plant, and equipment Assets classified as held for sale, net Equity investments and non-current receivables 181,694 162,939 Cash flows from investing activities (17,912) (12,591) - 996 860 828 Dividends received and capital reductions reversed (23) (29) Purchase and sale of securities, reversed 5,634 (3,558) Net working capital, capital expenditures (5,665) (8,913) Sale of non-current assets, reversed (24,175) (20,860) Net working capital, work in progress 2 1,471 5,948 Net working capital, tax equity Net working capital, other items Derivatives, net Decommissioning obligations Other provisions Tax, net Other receivables and other payables, net (15,157) (13,268) 11,928 10,820 (32,322) (32,995) (14,076) (5,630) 1,609 1,255 (8,851) (7,037) 3,844 (4,759) Interest-bearing debt in acquired enter- prises Restricted cash in acquired enterprises Gross investments Transactions with non-controlling interests in connection with divestments Sale of non-current assets Divestments Total capital employed 126,103 109,416 Net investments (972) (2,273) 1 4 (37,447) (39,307) 1,461 659 24,175 20,860 25,636 21,519 (11,811) (17,788) 1 Capital employed by segment is based on capital employed for reportable segments of DKK 123,615 million. 2 ‘Net working capital, work in progress’ consists of inventories related to transmission assets, construction agreements, and construction management agreements in connection with the construction of transmission assets and offshore wind farms for partners as well as related trade payables. Ørsted annual report 2022 Financial statements Notes | 3.1 Acquisition of enterprises 3.1 Acquisition of enterprises Cash flows used for acquisitions DKKm Fair value at time of acquisition: Other intangible assets than goodwill Property, plant, and equipment Joint ventures Contract assets and liabilities, net Trade receivables Other receivables Receivables from associates and joint ventures Cash Interest-bearing debt, excl. lease liabilities Provisions Derivatives Deferred tax Other liabilities Net assets acquired Goodwill Purchase price Cash, available and acquired Contingent consideration Accrued purchase price Cash flow used for acquisition of enterprises Purchase price Adjustments for cash Adjustments for interest-bearing debt Adjustments for other debt and net working capital items Adjustments for cash, debt, and net working capital items in JVs Enterprise value 94 Ostwind Other 2022 2021 167 2,342 313 (76) 135 73 174 432 (437) (10) - (525) (241) 2,347 1,718 4,065 (432) - (260) 3,373 4,065 (432) 437 (65) 1,118 5,123 - - 26 - - - - - - - - - 7 33 - 33 - - - 33 26 - - - - 26 167 2,342 339 (76) 135 73 174 432 (437) (10) - (525) (234) 2,380 1,718 4,098 (432) - (260) 3,406 4,091 (432) 437 (65) 1,118 5,149 452 5,182 33 - 236 163 - 146 (2,273) (47) (456) (634) (312) 2,490 - 2,490 (142) 83 - 2,431 2,490 (146) 2,273 - - 4,617 Accounting policies Acquisition of enterprises is recognised using the acquisition method. Under this method, assets and liabilities as well as contingent liabilities of the acquired enterprise are measured at fair value on the date of acquisition. The fair values of production assets and assets under construction are normally determined using an income approach where they are valued at present value based on the expected cash flows they can generate, including any non- separable power purchase agreements, and on income, such as production tax credits. The fair value of derivatives is deter- mined using our normal approach for such items, which is based on market prices or expectations for prices over the term of the derivatives. The fair values of other assets and liabil- ities are valued using the approach we find most relevant for the individual item, which can be either a market approach, an income approach, or a cost approach. An acquired enterprise is included in the consolidated financial statements from the date of acquisition, which is the date when we obtain control. When an acquired enterprise has entered into a power purchase agreement classified as a derivative, the fair value of the agreement will be included in the opening balance. Post-acquisition, this fair value is recognised as an adjustment to revenue over the duration of the con- tract, based on the fair value calculation at the time of the acquisition. Ørsted annual report 2022 Financial statements Notes | 3.1 Acquisition of enterprises On 19 September 2022, we acquired Ostwind, a German and French onshore wind plat- form, and obtained all of the voting equity interests in OSTWIND Erneuerbare Energien GmbH, OSTWINDpark Rotmainquelle GmbH & Co. KG, OSTWIND International S.A.S., and OSTWIND Engineering S.A.S. The acquisition of Ostwind constitutes Ørsted’s entry into the sizeable and growing German and French onshore markets and substantially expands Ørsted’s onshore foot- print in Europe. Together with the acquisition of Brookfield Renewable’s Ireland and UK onshore wind platform in 2021 and the recent entry into the Spanish onshore market, Ørsted’s onshore renewables platform now covers the US market and four of the largest growth markets in Europe at scale. The total purchase price was DKK 4,065 million, including an accrued purchase price of DKK 260 million. Of the purchase price allocation, DKK 2,342 million is allocated to ‘Property, plant, and equipment’, consisting of operating wind and solar farms and projects under construction or in advanced development. DKK 1,718 million is allocated to ‘Goodwill’ related to greenfield wind and solar development. Since the acquisition date, the contributed revenue and result after tax from Ostwind has been immaterial. If the acquisition had been made on 1 January 2022, the revenue would have been DKK 318 million, and profit after tax would have been DKK 246 million. As part of the acquisition process, we have incurred costs of DKK 30 million, which have been expensed in our income statement in the Onshore segment. The fair values of the assets and liabilities are not considered final until 12 months after the acquisition date. Following Ørsted’s acquisition of Ostwind, Caisse des Dépôts et Consignations, a co-investor in part of Ostwind’s operating portfolio in France, in December decided to exercise an option to acquire Ostwind’s shares (corresponding to a total of 87 MW) in the projects that Ostwind and Caisse des Dépôts et Consignations co-owned. 95 Key accounting estimate Purchase price allocations in business combinations When we apply the acquisition method for business combinations, by nature this involves judgement in assessing the fair value of identifiable assets and liabilities. For property, plant, and equipment, our assessment of fair value is based on a number of estimates regarding WACC and expected cash flows, which both have a large impact on the fair value. Our assessment of fair value for deriva- tives is dependent on expected future prices. See note 6.6 ‘Fair value measure- ment’ for our valuation principles. Ørsted annual report 2022 Financial statements Notes | 3.2 Divestment of enterprises 3.2 Divestment of enterprises 2022 437 437 (338) 99 99 437 (195) 89 331 2021 (52) (52) (95) (147) (147) (52) - (690) (742) The gain on divestment of enterprises was affected by a DKK 818 million increase in our indemnification provision towards INEOS in relation to the divestment of our upstream oil and gas business in 2017. The provision regarded a transfer pricing case with the Norwegian Tax Administration. Selling price DKKm Payment Selling price on divestment of enterprises Of which, selling price payable Cash selling price on divestment of enterprises Total cash flows from divestment of enterprises Gain (loss) on divestment of enterprises DKKm Selling price on divestment of enterprises Net assets sold Provisions as a result of the transactions Gain (loss) on divestment of enterprises We have not divested any enterprises in 2022. In March 2021, we divested a part of our UK B2B business with a negative cash flow of DKK 18 million. Further, we repaid DKK 183 million to Andel for the settlement of the divestment of the Danish power distribution, residental customer, and city light businesses in 2020. 96 Accounting policies We recognise income from divested enterprises in the income statement up until the date of divestment. The date of divestment is the date on which we relinquish control of the divested enterprise. Gains or losses on the divestment or discontinuation of subsidiaries and asso- ciates are determined as the difference between the selling price and the carry- ing amount of the net assets divested. Moreover, we deduct any provisions made for obligations related to sales and purchase agreements and the fees of advisers, etc., in connection with the divestment or discontinuation of the enterprise. Ørsted annual report 2022 Financial statements Notes | 3.3 Intangible assets, and property, plant, and equipment 3.3 Intangible assets, and property, plant, and equipment Production assets Fixtures and fit- tings, tools, and equipment Property, plant, and equipment under construction Property, plant, and equipment Intangible assets, and property, plant, and equipment DKKm Intangible assets Cost at 1 January 2022 Exchange rate adjustments Additions Additions on acquisition of enterprises Disposals Adjustment of decommissioning obligations Reclassified assets Reclassified from assets classified as held for sale Cost at 31 December 2022 Depreciation and amortisation at 1 January 2022 Exchange rate adjustments Depreciation and amortisation Disposals Depreciation and amortisation at 31 December 2022 Impairment losses at 1 January 2022 Exchange rate adjustments Impairment losses and reversals Disposals Impairment losses at 31 December 2022 Carrying amount at 31 December 2022 3,243 (10) 1,314 1,886 (726) - - - 5,707 (999) 1 (36) 61 (973) (701) (2) - (2) (705) 4,029 Land and buildings 10,311 (18) 720 53 (484) - 165 - 10,747 (2,245) 32 (607) 53 148,309 (2,019) 1,728 1,179 (9,634) 4,398 34,993 140 179,094 (51,906) 1,278 (8,814) 340 1,858 (62) 1,240 7 (12) - 45 - 3,076 (1,254) 13 (297) 5 (2,767) (59,102) (1,533) - - - - - (785) 4 - - (781) - - - - - 7,980 119,211 1,543 57,852 (555) 29,394 1,103 (1,136) 503 (35,203) 130 52,088 - - - - - (744) 53 (2,529) 63 (3,157) 48,931 218,330 (2,654) 33,082 2,342 (11,266) 4,901 - 270 245,005 (55,405) 1,323 (9,718) 398 (63,402) (1,529) 57 (2,529) 63 (3,938) 177,665 Intangible assets Intangible assets consist of goodwill of DKK 1,843 million (2021: DKK 125 million), carbon emission allowances of DKK 1,464 million (2021 DKK 820 million), other rights of DKK 614 million (2021: DKK 475 million), completed development projects of DKK 28 million (2021: DKK 46 million), and development projects in progress of DKK 80 million (2021: DKK 77 million). 97 Production assets by segment, % 2022 DKK 119,211 million Offshore Onshore 60 % 35 % Bioenergy & Other 5 % Property, plant, and equipment under construction by segment, % 2022 DKK 48,931 million 79 % Offshore Onshore 20 % Bioenergy & Other 1 % Ørsted annual report 2022 Financial statements Notes | 3.3 Intangible assets, and property, plant, and equipment Intangible assets, and property, plant, and equipment DKKm Intangible assets Land and buildings Production assets Fixtures and fit- tings, tools, and equipment Property, plant, and equipment under construction Property, plant, and equipment Cost at 1 January 2021 Exchange rate adjustments Additions Additions on acquisition of enterprises Disposals Adjustment of decommissioning obligations Reclassified assets Reclassified to assets classified as held for sale Cost at 31 December 2021 Depreciation and amortisation at 1 January 2021 Exchange rate adjustments Depreciation and amortisation Disposals Depreciation and amortisation at 31 December 2021 Impairment losses at 1 January 2021 Exchange rate adjustments Impairment losses and reversals Disposals Impairment losses at 31 December 2021 Carrying amount at 31 December 2021 2,224 33 840 452 (306) - - - 3,243 (941) (1) (63) 6 (999) (644) - (57) - (701) 1,543 7,254 330 2,554 121 (25) - 77 - 10,311 (1,680) (50) (525) 10 130,983 1,574 5,293 4,344 3,326 (5,535) 147 9,751 - 148,309 (43,872) (1,305) (7,144) 415 44 260 - (98) - 78 - 1,858 (1,067) (15) (240) 68 (2,245) (51,906) (1,254) - - - - - (927) 24 - 118 (785) - - - - - 29,987 3,169 36,783 1,735 (5,179) 1,307 (9,906) (44) 57,852 - - - - - (642) (30) (72) - (744) 169,798 8,836 43,941 5,182 (10,837) 1,454 - (44) 218,330 (46,619) (1,370) (7,909) 493 (55,405) (1,569) (6) (72) 118 (1,529) 8,066 95,618 604 57,108 161,396 Production assets by segment, % 2021 DKK 95,618 million Offshore Onshore 59 % 34 % Bioenergy & Other 7 % Property, plant, and equipment under construction by segment, % 2021 DKK 57,108 million Offshore Onshore 16 % 84 % 98 Ørsted annual report 2022 Financial statements Notes | 3.3 Intangible assets, and property, plant, and equipment Land and buildings Production assets Fixtures and fittings, tools, and equipment Property, plant, and equipment Lease assets DKKm Carrying amount at 1 January 2022 Exchange rate adjustments Additions Additions on acquisition of enterprises Disposals Divestment of enterprises Depreciations Carrying amount at 31 December 2022 Lease assets DKKm Carrying amount at 1 January 2021 Exchange rate adjustments Additions Additions on acquisition of enterprises Disposals Divestment of enterprises Depreciations Carrying amount at 31 December 2021 6,628 40 635 53 (431) - (516) 6,409 4,274 248 2,500 63 (15) - (442) 6,628 104 - 8 - - - (69) 43 172 1 - - - - (69) 104 Contractual obligations by segment DKKm Offshore Onshore Bioenergy & Other Total 0-1 year 1-5 years 5-10 years 58,262 10,365 178 68,805 16,541 2,713 - 17,266 - - 19,254 17,266 105,325 Overview of contracts entered into where delivery had not taken place at 31 December 2022. The obligations are measured at nominal value. 99 255 (42) 1,171 - (7) - (220) 1,157 170 2 277 - (30) - (164) 255 2022 92,069 13,078 178 6,987 (2) 1,814 53 (438) - (805) 7,609 4,616 251 2,777 63 (45) - (675) 6,987 2021 47,775 4,156 156 52,087 Leases We mainly lease office buildings, service and installation vessels, seabeds related to offshore wind farms, and plots of land related to onshore wind farms, solar farms, and battery storage facilities. Seabed leases include variable lease payments, which depend on the number of megawatt hours generated. However, we have typically agreed on minimum lease payments for the seabeds, and these minimum payments are included in the lease liabilities. Expenses for the year relating to variable lease payments not included in lease lia- bilities were DKK 609 million in 2022 (2021: DKK 352 million). Interests on lease debt ex- pensed in profit (loss) were DKK 256 million in 2022 (2021: DKK 261 million). Total cash outflow for leases were DKK 1,447 million in 2022 (2021: DKK 1,133 million). We have not entered into lease liabilities which are not commenced per 31 December 2022 and consequently not included in the balance sheet. For maturity analysis of leases liabilities, we refer to note 5.5 ‘Maturity analysis of financial liabilities’. Contractual obligations Our contractual obligations for property, plant, and equipment at 31 December 2022 related mainly to wind turbines, foundations, and cables, etc., for the construction of offshore wind farms (primarily Greater Changhua 1 & 2a, Hornsea 3, Ocean Wind 1 and 2, Revolution Wind, Sunrise Wind, and South Fork). The obligations in Onshore mainly related to purchases of wind turbines and solar PV modules. Useful lives Battery storage Buildings Fixtures and fittings, tools, and equipment Gas transportation system (marine pipelines) Offshore wind farms Onshore wind farms Production assets, power (thermal), and district heating Solar farms Goodwill 15 years 20-50 years 3-10 years 20-40 years 20-30 years 24-30 years 20-25 years 35 years Indefinite Ørsted annual report 2022 Financial statements Notes | 3.3 Intangible assets, and property, plant, and equipment CGUs in Offshore Bioenergy & Other The Danish CHP plants constitute a single CGU, as overall production planning is for the entire Danish portfolio. In addition, the Renescience plant in Northwich in the UK and the Danish offshore gas pipeline system are deemed to constitute independent CGUs. Significant CGUs Central CHP plants (including goodwill), Renescience Northwich, and the offshore gas pipeline system. The cash generating units (CGUs) are made up of individual offshore wind farms, each of which generates cash flows for the segment inde- pendently of each other. Significant CGUs Anholt, Borkum Riffgrund 1, Borkum Riffgrund 2, Borkum Riffgrund 3, Borssele 1 & 2, Burbo Bank Extension, Gode Wind 1, Gode Wind 2, Gode Wind 3, Greater Changhua 1 & 2a, Horns Rev 2, Hornsea 1, Hornsea 2, London Array, Ocean Wind 1, Race Bank, Revolution Wind, South Fork, Sunrise Wind, Westermost Rough, Walney, Walney Extension, and West of Duddon Sands. CGUs in Onshore The CGUs are made up of individual onshore wind and solar farms, each of which generates cash flows for the segment independently of each other. Significant CGUs Amazon, Bellefield 1, Garracummer, Haystack, Helena Energy Center, Kennoxhead 1, Lincoln Land Wind, Lisheen 3, Lockett, Muscle Shoals, Old 300, Permian Energy Center, Plum Creek Wind, Sage Draw Wind, Tahoka Wind, Western Trail, Willow Creek Wind, and Willow Springs Wind. 100 in calculating the recoverable amount of the future cash flows of the project. These challenges have been partially offset by anticipated increased tax benefits from recently enacted tax legislation in the US. As a result of these factors, Ørsted recog- nised an impairment of DKK 2.5 billion on Sunrise Wind in 2022. Ørsted remains committed to Sunrise Wind and the rest of its US offshore wind portfolio. We will con- tinue our work to mature and develop these projects, with an aim to ensure that we can deliver renewable energy to the states. The recoverable amount of DKK 1.8 billion was calculated based on the value-in-use method. Impairment losses Impairment losses relating to intangible assets We have not recognised any material impairments to goodwill or other intangible assets in 2022. Impairment losses relating to property, plant, and equipment Sunrise Wind The offshore wind energy industry is facing significant macroeconomic challenges, such as unprecedented cost inflation and rapidly rising interest rates in 2022. Sunrise Wind, Ørsted’s 50 % owned US offshore wind development project, has been particularly impacted by general market trends, as well as project specific challenges. As previously disclosed, the project cost has increased substantially since bid. In the past year, further acute cost increases, spe- cifically driven by the prices for installation vessels and the associated services, have occurred. Rising interest rates have had a corresponding impact on the discount rate Ørsted annual report 2022 Financial statements Notes | 3.3 Intangible assets, and property, plant, and equipment Key accounting estimate Accounting policies Key assumptions in impairment tests Value-in-use calculations are based on the leadership team’s expectations to future cash flows from financial budgets and forecasts and include a number of assumptions and estimates. Intangible assets Rights are measured at cost less accumulated amorti- sation and impairment losses. Rights are amortised on a straight-line basis over their estimated future useful lives, which are 5-20 years. These assumptions include construction schedules, estimates of future market conditions, CAPEX, market prices of energy and commodities, inflation, discount rates, useful lives of the projects, tax incentives, including the ability to qualify for tax credits from the US Inflation Reduction Act, etc. Goodwill represents the excess of the cost of an acquisition over the fair value of the identifiable net assets of the acquired company. The carrying amount of goodwill is allocated to the Group’s cash-generating units, which are the operating segments at the acquisi- tion date. Goodwill is not tax deductable. The market prices applied are based on available forward prices for a period of up to five years and our best estimate of long-term prices for the remainder of the period. As goodwill relates to greenfield onshore wind and solar development, an assumption included in the value-in-use calculations for goodwill is the ability to develop new sites. This assumption is based on current and future build-out plans for renewable energy in Central Europe. While there are inherent uncertainties in the assumptions, the assumptions reflect the leadership team’s best estimate over the life of the Group’s CGUs. The base discount rate for value-in-use calculations is in the range of 5-8 % after tax. Sensitivities to impairment tests The assessment of indications of impairment of proper- ty, plant, and equipment is based on the expectations applicable as of 31 December 2022. Significant adverse developments in interest rates, energy prices, tax incentives, and CAPEX assumptions could result in impairment losses on certain opera- tional and development assets in our portfolio, while an opposite development could lead to impairment reversals. As a result, we may face adjustments to the recognised impairment of property, plant, and equipment in future reporting periods. Annual impairment tests are carried out for goodwill and other intangible assets with indefinite useful lives. Property, plant, and equipment Property, plant, and equipment which is not a lease is measured at cost less accumulated depreciation and impairment losses. Cost of property, plant, and equip- ment is depreciated by using the straight-line method, the diminishing-balance method, or the reducing-frac- tion method. The diminishing-balance method and the reducing-fraction method result in decreasing deprecia- tion over the useful life. These methods are used for some of our offshore wind farms. The residual values, useful lives, and methods of depre- ciation of property, plant, and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. Costs comprise purchase price and any costs directly attributable to the acquisition until the date the asset is available for use. The costs of self-constructed assets comprise direct and indirect costs of materials, components, sub-suppliers, and labour. Borrowing costs relating to both specific and general borrowing directly attributable to assets under construction with a lengthy construction period are recognised in costs during the construction period. Costs are increased by the present value of the estimated obligations for demolition and decommissioning of assets to the ex- tent that the obligations are recognised as provisions. Subsequent costs, for example in connection with replacement of parts of an item of property, plant, and equipment, are recognised in the carrying amount of the asset in question when it is probable that future economic benefits will flow to the Group from the expenses incurred. Any residual value of the replaced parts is recognised in the income statement as loss on disposal of non-current assets. Other repair and maintenance expenses are recognised in profit (loss) for the year as incurred. Impairment For the purposes of assessing impairment losses, intangible assets, and property, plant, and equipment are grouped at the lowest level for which there are separately identifiable cash flows (cash-generating units (CGUs)). CGUs are assessed for indication of impairment on a quarterly basis. The value of a CGU is impaired if the net book value exceeds the recoverable amount, which is the higher of the estimated value in use and the fair value less costs of disposal. Impairment losses are recognised in the income statement and, except in the case of goodwill, reversed if there has been a change in the estimates used to determine the CGU’s recoverable amount. Reversal of an impairment loss is recognised as income in the income statement net of depreciation if no impairment loss has been recognised for the CGU. The discount rate applied when calculating value in use takes general risks into account and is based on the weighted average cost of capital (WACC) after tax, whereas the estimated future cash flows are adjusted for risks specific to the asset. Estimated future cash flows are discounted using a nominal post-tax discount rate. Leases Our lease assets are classified alongside our owned assets of similar type under property, plant, and equip- ment. Initially, we measure a lease asset at cost, being the initial amount of the lease liability. We depreciate our lease assets over the lease term. The deprecia- tion method used is the straight-line method for all our lease assets, except for seabed leases where the depreciation method is aligned with the depreciation method for the related offshore wind farm. Therefore, seabed lease assets are depreciated using either the straight-line method or the reducing-fraction method. 101 Our lease liabilities are initially measured at the net present value of the in-substance fixed lease payments for the use of a lease asset. If, at inception of the lease, we are reasonably certain about exercising an option to extend a lease, we will include the lease payments in the option period when calculating the lease liability. We measure the lease asset to the value of the lease liability at initial recognition. Contracts may contain both lease and non-lease com- ponents. We allocate the consideration in a contract to the lease and non-lease components based on their relative stand-alone prices. We account for non-lease components in accordance with the accounting policy applicable for such items. Non-lease components com- prise building services and operating costs of leased vessels, etc. Variable lease expenses are recognised in other exter- nal expenses in the period when the condition trigger- ing those payments occurs. Interests of lease liabilities are recognised in financial expenses. Each lease payment is separated into repayment of the lease liability and payment of interests of the lease liability. Debt repayments are classified as cash flows from financing activities, and payment of interests are classified as cash flows from operating activities. Ørsted annual report 2022 Financial statements Notes | 3.4 Inventories 3.4 Inventories Inventories DKKm Offshore transmission assets Biomass Gas Coal Oil Green certificates Carbon emission allowances (purchased) Other Total inventories Inventories recognised as an expense in ‘Cost of sales’ during the year Inventories measured at fair value are disclosed in note 6.6 ‘Fair value measurement’. ‘Offshore transmission assets’ primarily relate to the Hornsea 2 transmission asset. ‘Green certificates’ are primarily renewable obligation certificates (ROCs), which are issued to renewable energy power generators in the UK. Gas at storage primarily relates to our gas trade activities. 2022 5,119 778 4,557 1,169 354 2,053 49 24 2021 9,235 225 3,813 221 76 2,040 388 - 14,103 15,427 15,998 9,806 102 Other inventories are measured at cost, determined on a first in, first out basis or net realisable value, if net realisable value is lower. Inventories are written down to the lower of net realisable value and cost price. For offshore transmission assets, it is the expected final transfer value announced by Ofgem. The net realisable value is the sum (discounted) which the inventories are expected to generate through a normal sale. Accounting policies Offshore transmission assets are recognised as inventory until divestment and measured at cost. The costs comprise costs of materials used in construction, site labour costs, costs of renting equipment as well as indirect produc- tion costs, such as employee costs. Gas storage in non-Danish facilities are man- aged on a fair value basis, and therefore the gas in these storage facilities is recognised at fair value less costs to sell. Changes in the fair value less cost to sell are recognised in cost of sales in the period of the change. Gas in Danish storage facilities are recognised at cost, determined as a weighted average of the previous months purchase price, including transport costs. Purchased carbon emission allowances are measured at market value. Green certificates, which we earn by generating power using renewable energy sources, are recognised in inventories in step with our gen- eration. We measure green certificates (earned and bought) at cost using the first in, first out (FIFO) principle. Ørsted annual report 2022 Financial statements Notes | 3.5 Contract assets and liabilities 3.5 Contract assets and liabilities Revenue from contracts with customers DKKm Revenue recognised included in contract liabilities at the beginning of the year Revenue recognised from perfomance obligations satisfied in previous years Contract balances DKKm Contract assets Current contract assets Total contract assets Contract liabilities Non-current contract liabilities Current contract liabilities Total contract liabilities 2022 2021 21 324 (471) 408 408 3,085 2,269 5,354 - 2 2 3,230 2,440 5,670 The table shows the amount of our revenue relating to contract liabilities carried forward (as prepayments and deferred revenue) and the amount relating to performance obligations satisfied in a prior year (e.g. re- negotiations or constraints on variable considerations that are not recognised until they are highly probable). Accounting policies We recognise a contract asset when we perform a service or transfer goods in advance of receiving consideration, and the consideration is conditional. When the consideration is unconditional, and the goods or services are delivered, we recognise a receivable. A right to consideration is unconditional if only the passage of time is required before the payment is due. Contract assets are measured at the transaction price of the goods delivered or services performed less invoicing on account. We recognise a contract liability when the invoicing on account and expected losses exceed the transaction price of the goods or services transferred to our customer. Contract assets and contract liabilities are primarily related to: – the construction of offshore wind farms with partners, with each party typically owning 50 % of the offshore wind farm prepayments from heat customers. – At the end of 2022, current contract liabil- ities related to the construction of Borkum Riffgrund 3. At the end of 2021, current con- tract liabilities related to the construction of Greater Changhua 1. Non-current contract liabilities primarily relate to prepayments from heat customers. Contract assets primarily related to the construction of Greater Changhua 1 at the end of 2022. 103 Ørsted annual report 2022 Financial statements Notes | 3.6 Trade receivables / 3.7 Other receivables and other payables 3.6 Trade receivables 3.7 Other receivables and other payables Trade receivables DKKm Trade receivables, not due Trade receivables, 1-30 days overdue Trade receivables, more than 30 days overdue Trade receivables, write-downs Total trade receivables We continuously perform credit ratings of our customers. For customers with a general credit risk, a write-down of 0-1 % is carried out on initial recognition. In 2022, write-downs of receivables and losses for the year were DKK 0 million (2021: DKK 0 million). Reversal of write- downs was DKK 52 million. 2022 11,025 892 835 (51) 12,701 2021 9,265 332 71 (103) 9,565 Accounting policies We keep our receivables until maturity, and therefore, they are measured at amortised cost. Write-downs are carried out from initial recognition of our receivables. The write- down is calculated as the difference between the carrying amount of the receivable and the net present value of expected future cash flows from the receivable. The discount rate used is the effective interest rate for the individual receivable or the individual portfolio. We apply the simplified approach to the write-down of trade receivables, which permits calculating the write-down as the full loss during the entire term of the receivable. Other receivables DKKm Receivables from the divestment of assets and enterprises Receivables from the divestment of equity investments to non-controlling interests Collateral provided1 Cash, not available for use VAT and other indirect tax receivables Prepayments Deposits Other Total other receivables Of which, working capital Of which, other capital employed Of which, interest-bearing net debt Other payables DKKm M&A related liabilities Payables related to the divestment of assets2 Accrued interest Collateral received3 Salary-related items payable VAT and other indirect taxes payable Carbon rights Other deferred income Other Total other payables Of which, working capital Of which, other capital employed Of which, interest-bearing net debt 2022 7,644 713 5,888 2,471 1,392 870 624 3,930 23,532 9,896 7,876 5,760 4,203 2,904 2,358 1,184 671 593 5 345 2,618 14,881 3,384 6,574 4,923 2021 89 757 11,909 1,319 913 742 572 2,325 18,626 11,962 438 6,226 3,436 - 1,685 8 550 533 154 397 2,687 9,450 3,771 5,161 518 104 1 The collateral provided by the Group is receivables from banks in connection with hedging activities. 2 Mainly related to the divestment of a portfolio of four onshore projects. 3 The collateral received by the Group is cash received from banks in connection with hedging of derivatives. Ørsted annual report 2022 Financial statements Notes | 3.8 Tax equity liabilities 3.8 Tax equity liabilities Tax equity liabilities DKKm Balance at 1 January Contribution received from tax equity partners Additions from acquisitions Tax attributes and PTCs/ITCs recognised in other operating income Cash paid to tax equity partners Tax equity partners’ contractual return Exchange rate adjustments Balance at 31 December Of which, working capital Of which, interest-bearing debt 2022 14,564 1,945 643 (2,521) (301) 1,134 929 16,393 15,157 1,236 2021 7,967 5,415 1,297 (1,322) (127) 616 718 14,564 13,268 1,296 As at 31 December 2022, we have fourteen onshore wind and solar farms for which we have received tax equity contributions. In the US, we have several wind and solar farms with tax equity partners. During 2022, we commissioned the onshore wind farm, Haystack, and the wind portion of our combined onshore wind and solar PV project, Helena Energy Center. We received tax equity contributions from our partners related to both projects. We also partly commissioned and received tax equity contributions from our partner for the solar PV farm, Old 300. In addition, we acquired Ford Ridge, an operational onshore wind farm, including a tax equity liability. Description of tax equity partnerships Tax equity partnerships are characterised by a tax equity partner, who contributes an upfront payment as part of the initial project investment and does not have an operation- al role in the project. The partner receives a contractually agreed return on the contribu- tion. In order to ‘repay’ the initial contribu- tion and the return, a disproportionate share of the production tax credits (PTCs) or the investment tax credits (ITCs) and other tax attributes (accelerated tax depreciation and other taxable results) are allocated to the partner during the first part of the project’s lifetime. The partner also receives some cash payment-based percentages specified in the partnership agreements. Once the partner receives the agreed return, the agreement flips, and the partner is typically entitled to a minor part of the cash distribu- tions from the project, unless we repurchase this right from them, which is highly likely. 105 Accounting policies When a tax equity partnership is formed, we evaluate if the company should still be fully consolidated based on our right to variable returns as well as our ability to exercise influ- ence on financial and operational decisions impacting those returns. Due to the operational and financial nature of the projects and the influence normally given to tax equity partners in such agreements, we normally have the influence to fully consolidate companies that have tax equity partners. The terms of the tax equity partner’s contribu- tion are evaluated to determine the accounting treatment. The contribution generally has the characteristics of a liability as the initial con- tribution is repaid, including an agreed return, and the partner does not share in the risks of the project in the same way as a shareholder. As such, the contribution is accounted for as a liability and measured at amortised cost. The liability is based on the expected method of repayment and is divided into: – a net working capital element to be repaid through PTCs/ITCs and other tax attributes – an interest-bearing debt element expected to be repaid through cash distributions. The partner’s agreed return is expensed as a financial expense and is recognised as an increase of the tax equity liability. PTCs and other tax attributes transferred to the tax eq- uity partner are recognised as other operating income. Tax attributes allocated to the tax equity partner are deferred and recognised on a straight-line basis over the estimated contractual length of the partnership structure, while PTCs are recognised in the periods earned, similar to recognition of our own PTCs. ITCs, typically associated with solar farms, are recognised on a straight-line basis over the flip period (partner’s ITCs) or over the lifetime of the asset (our own ITCs). In addition to the above, we recognise a liability for the expected purchase price for the partner’s post-flip rights to cash distributions. This liability is recognised at fair value, and adjustments are expensed as a financial item. This recognition reflects the intention and high likelihood that we will purchase the partner’s post-flip rights, and they are part of the finan- cial costs of the arrangement. If we choose not to buy the partner’s post-flip rights, the tax equity partner will be entitled to part of the company’s returns in the post-flip period. At that point, the partner will share in the risks and rewards in the company as a shareholder. We will continue to classify the tax equity investment as a liability after flip. Key accounting judgement Recognition of tax equity partnerships On formation of a tax equity partnership, we assess the appropriate recognition of the partner’s contribution as well as the method of recognition for the elements used to repay the partner, such as PTCs and tax attributes. In assessing the recognition of the partner’s contribution, we look at: – the expected flows of PTCs, tax attributes, and cash payments to the partner – the rights and obligations of both us and the tax equity partner. The deferral of the income related to tax attributes and the recognition of the contribu- tion as working capital or interest-bearing debt are affected by our expectation to the size, method, and timing of repayments. Ørsted annual report 2022 Financial statements Notes | 3.9 Provisions and contingent liabilities 3.9 Provisions and contingent liabilities Provisions DKKm Provisions at 1 January Exchange rate adjustments Used during the year Provisions reversed during the year Provisions made during the year Disposals Additions of acquisition of enterprises Divestment of enterprises Change in estimates Transferred to other payables Transferred to/from assets and liabilities classified as held for sale Interest element of provisions Total provisions at 31 December Falling due as follows: 0-1 year 1-5 years After 5 years Decommissioning obligations by segment DKKm Offshore Onshore Bioenergy & Other Total 106 2022 2021 Decom- missioning obligations Other provisions Decom- missioning obligations Other provisions 6,860 147 (1,495) (1,187) 4,142 - - (107) - Total 13,863 441 (1,497) (1,187) 5,529 (296) 113 (107) 62 (1,372) (1,372) - 49 (11) 350 7,037 15,888 623 5,952 462 764 6,706 8,418 8,851 (203) - - 832 (376) 33 - 4,087 - 414 438 14,076 217 1,798 12,061 7,037 (46) (1,382) (1,659) 1,663 - - (5) - - - 22 5,630 368 4,786 476 After 20 years 2,914 1,742 1,022 5,678 Total 15,888 (249) (1,382) (1,659) 2,495 (376) 33 (5) 4,087 - 414 460 19,706 585 6,584 12,537 2022 10,233 1,769 2,074 14,076 7,003 294 (2) - 1,387 (296) 113 - 62 - (11) 301 8,851 141 754 7,956 2021 6,155 1,302 1,394 8,851 Decommissioning obligations Decommissioning obligations comprise estimated expenses relating to decommis- sioning and disposal of our offshore wind, onshore wind, and solar farms, the restora- tion of seabeds, and the decommissioning of our CHP plants. As developers of offshore wind, onshore wind, and solar farms, we are obliged to decommission our wind and solar farms and restore the surroundings. When we con- struct offshore wind farms in cooperation with partners, they are liable for their share of the decommissioning costs. Therefore, we have only included the decommissioning obligations associated with our ownership interest in the offshore wind farms. Decommissioning obligations increased by DKK 5,225 million from 2021 to 2022, primarily due to the update of decommis- sioning scope and methodology and the construction of new wind and solar farms. Decommissioning methodology was reviewed to incorporate changes in per- mitting, biodiversity, and sustainability requirements as well as changes in new technologies and vessels. 0-5 years 5-10 years 10-20 years 1,387 13 615 2,015 2,251 - 246 2,497 3,681 14 191 3,886 Ørsted annual report 2022 Financial statements Notes | 3.9 Provisions and contingent liabilities Other provisions Other provisions comprise primarily: – offshore partnership provisions, including warranty obligations obligations in relation to the divestment of our oil and gas business in 2017 obligations in respect of our own carbon emissions provisions for onerous contracts other contractual obligations. – – – – Contingent liabilities Liability to pay compensation In case of any environmental accidents or other types of damage caused by our gas and oil transport, the companies Ørsted Salg & Service A/S and Danish Oil Pipe A/S are liable to pay compensation according to legislation. This also applies if there is no proof of negligence (strict liability). We have taken out insurance to cover any such claims. Secondary liability As part of the divestment of our oil and gas business in 2017, we assumed a secondary liability regarding the decommissioning of offshore installations. Litigation We are party to a number of court cases and legal disputes. In our assessment, none of these will significantly impact Ørsted’s financial position, neither individually nor collectively. 107 Key accounting estimate Accounting policies Assumptions for provisions We continually assess our provisions recognised to cover contractual obligations and claims raised against Ørsted. Timing, probabilities, amounts, etc., which have a bearing on our pro- visions’ estimates are updated quarterly based on our expectations. Provisions are recognised when the following criteria are fulfilled: – We have a legal or constructive obligation as a result of an earlier event. – The settlement of the obligation is expected to result in an outflow of resources. – The obligation can be measured reliably. Estimates of provisions are based on our expec- tations of, for example: – timing and scope of obligation – future cost level – legal assessment. If deemed material, non-current provisions are discounted using either the structural risk-free interest rate or the incremental borrowing rate. The structural risk-free interest rate is used for decommissioning liabilities and onerous con- tracts. It is calculated as the sum of real return (gross domestic product growth rate), inflation, and inflation premium for other risks. Separate structural risk-free interest rates are calculated for Europe, the US, and Taiwan. The outcome of our contractual obligations and claims may depend on future events, which are uncertain by nature. Decommissioning obligations are measured at the present value of the future liability in respect of decommissioning as expected at the balance sheet date. The present value of the provision and changes in estimate are rec- ognised as part of the cost of property, plant, and equipment and depreciated together with the associated asset. The addition of interest on provisions is recognised in the income state- ment under financial expenses. For onerous contracts, a provision is made when the expected income to be derived from a contract is lower than the unavoidable cost of meeting our obligations under the contract. Provisions concerning carbon emissions are recognised when our actual emissions exceed our holding of carbon emission allowances. We have been party to actions relating to the Danish competition authorities’ claim that the former Elsam A/S and Elsam Kraft A/S (‘Elsam’), now part of Ørsted, charged excessive prices in the Danish wholesale power market in the period 1 July 2003 to 31 December 2006. There are no longer any outstanding cases with the competition authorities claiming Elsam infringed competition law, but in connection with the former cases, some energy trading companies, some of their customers, and others have filed claims for damages, which are still pending. The biggest claim was filed in 2007 before the Copenhagen Maritime & Commercial Court, amounting to approx. DKK 4.4 billion with addition of litigation interest. The case is at the moment under preparation for the Maritime & Commercial Court. Ørsted is involved in ongoing transfer pricing disputes. For further information, we refer to section 4.1 ‘Approach to taxes’. Change of control Some of our activities are subject to con- sents, permits, and licences granted by pub- lic authorities. We may be faced with a claim for acceptance of any transfer, possibly with additional terms and conditions, if the Danish State holds less than 50 % of the share capi- tal or voting rights in Ørsted A/S. Read more in note 5.1 ‘Interest-bearing debt and FFO’. Ørsted annual report 2022 Financial statements Notes | 3.10 Non-controlling interests 3.10 Non-controlling interests Non-controlling interests DKKm Statement of comprehensive income Revenue EBITDA Profit (loss) for the year Total comprehensive income Profit (loss) for the year attributable to non-controlling interests Balance sheet Non-current assets Current assets Non-current liabilities Current liabilities Carrying amount of non-controlling interests Statement of cash flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities – of which, dividends paid to non-controlling interests Transactions with non-controlling interests DKKm Transactions with non-controlling interests Dividends paid to non-controlling interests Divestment of equity investments to non-controlling interests Other capital transactions with non-controlling interests Total transactions, cf. statement of cash flows Divestment of equity investments to non-controlling interests Changes in receivables relating to the acquisition and divestment of non-controlling interests Cash selling price, total 108 Gunfleet Sands Holding Ltd. Group Walney (UK) Offshore Windfarms Ltd. Ocean Wind JV HoldCo LLC 2022 2021 2022 2021 2022 2021 In the table, we provide financial information for subsidiaries with significant non-controlling interests. The amounts stated are the consolidated accounting figures of the individual enterprises or groups, determined according to our accounting policies. Amounts are stated before intra-group eliminations. Accounting policies Transactions with non-controlling inter- ests are accounted for as transactions with the shareholder base. Gains and losses on the divestment of equity investments to non-controlling interests are recognised in equity when the divestment does not result in a loss of control. Net assets acquired are not revalued on the acquisition of non-controlling inter- ests. Any difference between the carrying amount and the acquisition or selling price is recognised in equity. 518 317 70 4 35 455 231 (21) 72 (10) 1,582 1,702 171 607 58 543 246 - (261) (128) 179 463 79 669 230 - (230) (113) 2022 2021 (294) 3 1,461 1,170 3 3 (349) 446 235 332 446 446 1,348 608 76 (113) 38 4,424 364 1,352 290 1,570 544 (29) (413) (166) 1,223 626 57 303 29 4,767 259 1,030 334 1,848 587 (47) (540) (236) - 2 (21) 2 (5) - 3 (240) (126) (60) 8,234 2,483 444 310 908 1,843 93 (5,710) 5,838 - 165 292 147 552 47 (1,070) 1,164 - Subsidiaries with significant non- controlling interests 1 Gunfleet Sands Holding Ltd Walney (UK) Offshore Windfarms Ltd Ocean Wind JV HoldCo LLC Non- controlling interest Registered office 49.9 % 49.9 % London, UK London, UK Delaware, US 25 % 1 Entities are fully consolidated. Ørsted annual report 2022 Financial statements Notes | 4. Tax 4. Tax The Group’s taxes reflect our business operations and applicable tax legislation in the countries where we operate. 1.3 bn Corporate income tax paid by the Group in 2022 totalled DKK 1,263 million against DKK 1,380 million in 2021. 2.9 bn Current corporate income tax in 2022 totalled DKK 2,906 million against DKK 1,532 million in 2021. 6.5 bn Development in current and deferred tax asset and liabilities (tax, net), 2022 DKKm Corporate income tax paid by segment, 2022 DKKm Tax, net asset Tax on profit (loss) for the year Tax on other comprehensive income Corporate taxes paid Other effects 3,844 1,263 (649) (2,613) (236) 1,609 2022 Profit (loss) before tax Tax Tax in % 2021 2022 DKKm Tax equity, deferred tax liability - (354) Gain (loss) on divestment of enter- prises and assets Other adjustments Remaining business Effective tax for the year 11,173 6,436 17,609 - (1,036) (1,223) (2,613) n.a. 0 % n.a. 19 % 15 % Offshore Onshore Bioenergy & Other Ørsted A/S and other activities Total 1,272 572 1,263 (9) (572) Group ETR % 15 % Effective tax rate (ETR) for the Group for 2022 was 15 % against 18 % in 2021. Our total tax contribution in 2022 totalled DKK 6,500 million against DKK 5,590 million in 2021. ‘Other adjustments’ include changes in tax rates, movements in uncertain tax positions, tax concerning previous years, and unrecognised tax losses. 109 Ørsted annual report 2022 Financial statements Notes | 4.1 Approach to taxes 4.1 Approach to taxes At Ørsted, we want to provide user-friendly and transparent information about our global tax positions. We are committed to paying the right amount of tax, at the right time, in the right place – in accordance with the tax laws of the countries where we operate. We seek to comply not only with the letter of the law, but also with the underlying tax policy intent. We believe that taxes are a core part of our corporate social responsibility. We are committed to conducting our business in a way that contributes to the United Nations’ Sustainable Development Goals (SDGs). Taxes are a key contribution to the SDGs, in particular target 16.6 on the development of effective, accountable, and transparent institutions. For more details on our approach to taxes, we refer to our tax policy, which can be found here: orsted.com/taxpolicy. Transparency and sustainability For the third year in a row, we have drawn inspiration from the GRI (Global Reporting Initiative) 207: Tax standard when presenting our approach to and reporting of tax. In line with our tax policy, we engage constructively in national and international dialogue with governments, business groups, and civil society to support the develop- ment of effective tax systems, legislation, and administration. We want to help create a tax framework supporting the green transformation. During 2022, we have engaged with the OECD and European Union on the implemen- tation of Pillar 2 and submitted our response to a public consultation by the UK treasury on the UK capital allowances regime. Fur- ther, we have met with representatives from the Belgian Cabinet to discuss how tax regu- lations can support the green transformation and facilitate investments in renewables. We have met with representatives from the Greenlandic government to discuss the com- patibility of the Greenlandic tax regime with international tax regulations. Upon request, we have provided input to the Alternative Minimum Tax introduced under the Inflation Reduction Act in the US. We continuously engage with policymakers and authorities to ensure that windfall taxes and similar measures only target actual excess revenues on a net basis, including related hedges. The impact of the energy cap regulations and windfall taxes for 2023 will depend on not yet finalised legislation. The purpose of our engagement is to pro- mote the development of tax regimes that support the green transformation by contrib- uting to an informed discussion. By engaging with civil society and gathering input on, for example, how we share information, we believe we can contribute to increasing the public’s confidence in the corporate tax system. Further, we are committed to cre- ating certainty for our stakeholders, such as investors and the local communities where we pay our taxes. Tax governance Taxes are overseen by the Board of Directors, and within the Board, the Chair of the Audit & Risk Committee is accountable for our tax policy. The responsibility for tax risk manage- ment lies with the CFO and is overseen by the Audit & Risk Committee. The day-to-day tax management is handled by a centralised global tax team. Our tax function is involved in the planning, implementation, and documentation of all significant business decisions and processes to ensure coordinated assessment of all tax compliance and risks. The tax function also regularly monitors and updates tax risks and related controls. Complying with tax rules can be complex, as the interpretation of legislation and case law may not always be clear cut and may change over time, giving rise to tax risks. We have implemented a governance framework, which ensures appropriate processes and organisational structures to identify, assess, monitor, and manage tax risks at different levels of the Group. We manage our tax risks by preventing unnecessary disputes, which we strive to achieve through strong technical positions, thorough documentation and explanations of our positions, robust compliance procedures, and by engaging in up-front dialogues with tax authorities. We define a tax risk as any consequence relating to the application of our tax policy, day-to-day operations, compliance, or ex- ternal reporting that impacts the business in the form of cash liabilities, financial report- ing misstatements, or reputational damage. We have a standardised review process in place, and our controls are continuously reviewed, assessed, and, where applicable, substituted by automated processes. Tax decisions in relation to matters which are subject to approval by the Group Executive Team or the Board of Directors are approved by the Head of Tax. 110 Ørsted annual report 2022 Financial statements Notes | 4.1 Approach to taxes Our tax risk management work includes considering uncertain tax positions, e.g. when we have taken a position where there is an uncertainty created by a comparison of the wording of the law, the expressed policy intent or lack thereof, or fluctuating or diver- gent application by tax authorities or judicial systems in the countries where we operate. Occasionally, a multinational enterprise like Ørsted faces potential double taxation. This occurs when two or more tax jurisdic- tions seek to tax the same business income. We believe that profit should only be taxed once, and where the value is created in line with the position of the OECD. In response to the tax risks connected to cross-border activities, including the con- troversies described in this section, we have made tax-related provisions in accordance with IAS 12, IAS 37, and relevant interpreta- tion, such as IFRIC 23. The provisions have been calculated based on differences in tax rates and statistical risks of suffering eco- nomic or legal double taxation. Tax controversies During 2022, the Danish Tax Agency has opened further enquiries on development of non-Danish wind farms. The Danish Tax Agency also closed an enquiry relating to development services performed by Ørsted Wind Power A/S to our German offshore wind farm Borkum Riffgrund 2 without any adjustments. No information was provided from the Danish Tax Agency on why the enquiry on Borkum Riffgrund 2 was closed. If the principles applied by the Danish Tax Agency in the tax audits on the Hornsea 1, Walney Extension, and Race Bank offshore wind farms had been consistently applied in the Borkum Riffgrund 2 case, this would have resulted in a downward adjustments of the taxable profits in Denmark. To date, Ørsted Wind Power A/S has re- ceived final administrative decisions from the Danish Tax Agency in relation to the development of the offshore wind farms Hornsea 1, Walney Extension, and Race Bank. In all its decisions, the Danish Tax Agency claims that Ørsted Wind Power A/S has not acted at arm’s length terms when charging fees for technical development services provided to the project companies. In its decisions, the Danish Tax Agency has increased Ørsted Wind Power A/S’s tax pay- ment to Denmark by DKK 7.6 billion for the income years 2015, 2016, and 2017. We have appealed the administrative decisions to the Danish Tax Tribunal. In December 2020, we lodged a successful application for a mutual agreement procedure (MAP) between Denmark and the UK under the EU Arbitration Convention for Hornsea 1 and Walney Extension. On Race Bank, we continue to consider our further options, including an elaborated appeal to the Danish Tax Tribunal, a direct appeal to the court system, or a request for a MAP under the double tax agreement between Denmark and the UK. The Danish Tax Agency has accepted a deferral of the tax payment until the case has been finally decided. Tax planning and use of tax incentives We only use business structures that are driven by commercial considerations and aligned with our business activities. We do not use so-called secrecy jurisdictions or tax havens to avoid taxes. If we establish an entity in a low or nil-rate jurisdiction, it will be for substantive and commercial reasons. In order to remain competitive, we make use of incentives and tax relief implemented by governments where we have commercial substance, and our business activities are the intended beneficiaries of such incentives and relief. UN sustainability goal We are transparent about our approach to tax. We actively participate in the development of effective, accountable, and transparent legislation by our engagement with the OECD on Pillar 2. We endorse the B Team Responsible Tax Principles. The B Team is a group of business leaders working to redefine the culture of accountability in business, for companies, communities, and future generations by creating and cascading new norms of corporate leadership that can build a better world. ISRS 4400 – AUP on application of GRI 207:Tax We have drawn inspiration from the GRI 207: Tax standard when presenting our approach to and reporting of tax. The leadership team has been provided with a statement (ISRS 4400 – Agreed Upon Procedures) from our auditors on our application of GRI 207: Tax. The Fair Tax Mark accreditation scheme seeks to encourage and recognise businesses that pay the right amount of corporation tax at the right time and in the right place. We seek to pay tax responsibly and transparently and are proud to have qualified for the Fair Tax Mark in 2022. 111 Ørsted annual report 2022 Financial statements Notes | 4.2 Tax on profit (loss) for the year 4.2 Tax on profit (loss) for the year 2022 2021 Effective tax rate DKKm, % DKK million % DKK million Tax on profit (loss) for the year can be explained as follows: Calculated 22 % tax on profit (loss) before tax (3,874) Adjustments of calculated tax in foreign subsidiaries in relation to 22 % Tax effect of: Non-taxable income and non-deductible costs, net Unrecognised tax assets Tax equity contributions Movements in uncertain tax positions Changes in tax rates Adjustment of tax concerning previous years Effective tax for the year 348 2,243 (651) (354) 10 29 (364) (2,613) 22 (2) (13) 4 2 - - 2 15 (2,921) 160 1,842 (239) (2,278) 534 988 (476) (2,390) % 22 (1) (14) 2 17 (4) (7) 3 18 Income tax Tax on profit (loss) was DKK 2,613 million in 2022 against DKK 2,390 million in 2021. The effective tax rate was 15 % in 2022 against 18 % in 2021. The effective tax rate was primarily affect- ed by the largely tax-exempt divestments of the offshore wind farms Hornsea 2 and Borkum Riffgrund 3. Another primary factor derived from the recognition of deferred tax liabilities in connection with capitalisation of project costs in the US where we have entered into tax equity agreements on the following projects: Helena Energy Center Old 300 And the continued recognition of deferred tax liabilities on: North-East cluster Ocean Wind 1 112 See more regarding tax equity partner- ships in notes 3.8 ‘Tax equity liabilities’ and 4.3 ‘Deferred tax’. The adjustment of tax concerning previ- ous years primarily relates to a tax equity adjustment on the 2021 Texas winter storm that was not accounted for in 2021. This was partly offset by adjustments to provisions in Danish companies, a partial derecognition of tax loss carryforwards in the US, and adjustments related to the UK consortium relief in accordance with our agreements with our joint venture partners. The effective tax rate in 2021 was primar- ily affected by the largely tax-exempt divestments of the offshore wind farms Borssele 1 & 2 and Greater Changhua 1 and changes to the corporate tax rate in the UK, which impacted our net deferred tax assets. Another primary factor in 2021 was the recognition of a tax liability in connec- tion with tax equity partnerships in the US related to Haystack, Western Trail, Muscle Shoals, Permian Energy Center, the North- East cluster, and Ocean Wind 1. Accounting policies Tax for the year consists of current tax, changes in deferred tax, and adjustments in respect of previous years. Tax on profit (loss) for the year is recognised in the income statement. Tax relating to other items is recognised in other comprehen- sive income. Our uncertain tax positions are measured by using either of the following two methods, depending on which method we expect to better predict the resolu- tion of the uncertainty: – The most-likely-outcome method is applied in cases where there are only two possible outcomes. – The weighted-average method is used in cases where there are more than two possible outcomes. Our uncertain tax positions are recog- nised under ‘Income tax’ or ‘ Deferred tax’, depending on how the realisation of the tax position will affect the financial statement. Ørsted annual report 2022 Financial statements Notes | 4.2 Tax on profit (loss) for the year Tax on profit (loss) for the year and other Key accounting estimate Income tax DKKm Tax on profit (loss) for the year Tax on other comprehensive income Tax on hybrid capital related to equity Total tax for the year Tax on profit (loss) for the year can be broken down as follows: Current tax Deferred tax Changes in tax rates Uncertain tax positions Tax on hybrid capital Tax equity Adjustment of tax concerning previous years Tax on profit (loss) for the year Tax on other comprehensive income can be broken down as follows: Current tax Deferred tax Tax on other comprehensive income 2022 (2,613) (236) 13 (2,836) 2021 (2,390) 6,448 87 4,145 (2,906) (1,532) 868 29 10 104 (354) (364) (2,613) 60 (296) (236) 269 988 534 105 (2,278) (476) (2,390) (31) 6,479 6,448 comprehensive income In 2022, total tax for the year was DKK 2,836 million, consisting of tax on profit (loss) for the year, tax on other comprehensive income, and tax on hybrid capital related to equity. Current tax Current tax is the payable tax expense incurred by Ørsted on profit for the year. This differs from taxes paid as a result of payments or refunds regarding prior years and residual payments for the current year. Because of the high level of investments and the subsequent deferrals of payable tax as a consequence of accelerated tax depreciation, our current tax is generally lower than the statutory corporate tax rates during construction and the initial years after first power from a wind farm. 113 Estimates regarding recognition of income taxes We are subject to income taxes in all the countries where we operate. Significant judgement and estimates are required in determining the worldwide income taxes and income tax assets and liabilities, including provisions for uncertain tax positions. In the course of conducting business around the world, tax and transfer pric- ing disputes with tax authorities may oc- cur due to the complex nature of the tax rules related to the business. Judgement is applied to assess the possible outcome of such disputes. We apply the methods prescribed in IFRIC 23 ‘Uncertainty over Income Tax Treatments’ when making provisions for uncertain tax positions, and the provisions made are based on different scenarios of possible outcomes. We consider the provisions made to be adequate. The actual obligation may deviate and might lead to tax in excess of the uncertain tax provisions included. This depends on the result of litigations and settlements with the relevant tax authorities. Ongoing tax disputes, primarily related to transfer pricing cases, are included as part of ‘Income tax’ and ‘Deferred tax’. Estimates in respect of transfer pricing cases depend, among others, on whether corresponding adjustments can be ob- tained in the relevant jurisdictions, and, in terms of disputes regarding project companies with partners, whether com- pensation can be obtained from these partners. Any expected compensation from partners are included as part of ‘Other receivables’. Ørsted annual report 2022 Financial statements Notes | 4.3 Deferred tax 4.3 Deferred tax Net deferred tax for 2022 primarily consist of Offshore Onshore Bioenergy & Other Other activities/ eliminations Assets Recognition of tax loss carryforwards Internal gain on construction agreements Liabilities Tax equity structures Accelerated tax depreciation compared to accounting depreciation Acquisitions Financial instruments Deferred tax 2022 DKKm Deferred tax, assets Deferred tax, liabilities Unrecognised tax assets Deferred tax 2021 DKKm Deferred tax, assets Deferred tax, liabilities Unrecognised tax assets Offshore Onshore Bioenergy & Other Other activities/ eliminations Deferred tax at 31 December 14,554 3,471 895 11,701 798 254 61 3,915 83 10 4,387 94 1,457 2,496 100 1,563 136 93 (2,353) (2,468) - 7 295 22 13,719 7,414 1,078 13,281 5,616 463 The table shows the reconciliation of deferred tax to the balance sheet by segment. The unrecognised tax asset is primarily due to ring-fenced tax losses and other losses not meeting the criteria for recognition under IAS 12. There is no expiry of our unrecognised tax assets. No provision for withholding tax on dividends has been included as the amounts where a concrete dividend distribution is planned are considered immaterial in 2022. Other activities/eliminations primarily consist of eliminations between segments. 114 Significant movements in deferred tax assets and liabilities Deferred tax assets Tax loss carryforwards due to the accelerated depreciation for tax purposes. Current tax transferred to deferred tax in Denmark because of the net losses on hedges. Difference between tax and accounting treatment of financial instruments. Adjustments to previous year’s tax returns in Denmark. Utilisation of tax loss carryforwards and surrender of consortium relief in the UK. Deferred tax liabilities Recognition of tax liabilities in connection with tax equity partnerships related to the onshore wind part of Helena Energy Center, Old 300, the North-East cluster, and Ocean Wind 1 in our US offshore portfolio. Acquisition of the shares in Ostwind. Adjustment to prior-year classification of property, plant, and equipment related to our onshore wind farm Lincoln Land. Ørsted annual report 2022 Financial statements Notes | 4.3 Deferred tax Development in deferred tax assets and liabilities, 2022 DKKm Deferred tax balances at 1 January, net Movements Deferred tax balances at 31 December, net (40) (8,198) (8) (50) 1,350 4,666 3,937 6,008 7,665 (47) (1,710) (29) (2) 1,138 662 188 4,397 4,597 2 2,064 24 50 751 (4,251) (564) 564 (1,360) 7 (6,488) 21 (48) 212 4,004 3,749 1,611 (38) (6,134) 16 - 2,101 415 3,373 6,572 6,305 (40) (8,198) (8) (50) 1,350 4,666 3,937 6,008 3,068 7,665 Intangible assets Property, plant, and equipment Other non-current assets Current assets Decommissioning obligations Other non-current liabilities Current liabilities Tax loss carryforwards Offset Total Development in deferred tax assets and liabilities, 2021 DKKm Intangible assets Property, plant, and equipment Other non-current assets Current assets Decommissioning obligations Other non-current liabilities Current liabilities Tax loss carryforwards Offset Total 115 For tax purposes, depreciation of fixed assets is typically accelerated compared with accounting purposes. As the accelerated depreciation is larger than our taxable profits when we make large investments, our tax loss carryforwards increase when more wind farms enter into operation. The tax loss carryforwards are either offset against deferred tax liabilities on the same wind farm or jurisdiction or offset against expected future profits from the very same wind farm or jurisdiction. Our decommissioning liability increases as we expand operations. In most tax jurisdictions, the cost is not tax-deductible until it incurs. Assets 1 4,001 30 1 2,101 499 3,373 6,572 (2,859) 13,719 - 6,379 6 - 1,350 4,815 3,941 6,008 (9,218) 13,281 Liabilities 39 10,135 14 1 - 84 - - (2,859) 7,414 40 14,577 14 50 - 149 4 - (9,218) 5,616 Ørsted annual report 2022 Financial statements Notes | 4.3 Deferred tax Net deferred tax and accumulated investments, 2022 DKKbn Net deferred tax balance Accumulated net investments 74.6 74.4 36.0 7.5 2.0 21.8 24.7 1.0 5.7 0.1 0.6 5.3 0.0 1.5 -4.2 -0.6 Denmark The UK The US Germany The Netherlands Taiwan Ireland Poland The figure shows the net deferred tax assets (+) or liabilities (-) at country level as well as total net accumulated investments in each country. The distribution of net investments is affected by the sale of assets constructed by Ørsted in Denmark for operations outside Denmark where Ørsted only has part ownership. Jurisdictions not yet material are excluded from the overview. 116 Accounting policies Deferred tax is recognised in respect of all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. Deferred tax is not recognised in respect of temporary differences relating to: – the acquisition of joint operations, including licence interests – other items where differences arise at the time of acquisition, affecting neither the profit (loss) for the year nor the taxable income. However, this does not include differences arising in connection with company acquisitions. Except for right-of-use assets, lease liabilities, decommissioning, restoration, and similar liabilities where the corresponding amounts are recognised as part of the cost of the related assets. Differences arising in connection with company acquisitions are recognised. Deferred tax is measured depending on how we plan to use the assets and settle the liabilities. We offset tax assets and liabilities when the tax assets can be offset against tax liabilities in the year in which the deferred tax assets are ex- pected to be used. Intra-group gains and losses are eliminated when calculating deferred tax. In countries where taxes can be offset between companies due to joint taxation schemes, we have netted within a tax jurisdiction. Where no such possibility is feasible, the deferred tax is included with the gross amount on a company- by-company level. Tax losses carried forward in jurisdictions where we have a history of losses are recognised based on other convincing evidence of future profits. The other convicing evidence is based on our long-term forecast model approved by the Board of Directors. Adjustments to unrecognised tax assets are recognised on profit (loss) or other compre- hensive income depending on the underlying source of the adjustment. Deferred tax is measured based on the tax rules and rates applying when the deferred tax be- comes current tax. Changes in deferred tax as a result of changes in tax rates are recognised in profit (loss) for the year. Deferred tax (net liabilities) related to tax equity structures are recognised as tax expense in the income statement when the tax equity partner- ship agreement is effective, and we start to or have capitalised the corresponding assets. The liability recognised is the amount that we expect to take over once the contribution from the equity partner is repaid, and the tax equity structure flips. US tax equity partnerships We have entered into several tax equity part- nership agreements in the US. The expected value of the deferred tax liability related to property, plant, and equipment at the flip date in the tax equity partnership agreement is included in our accounts when the tax equity partnership agreement is effec- tive, and we start to or have capitalised the corresponding assets. The deferred tax liability from existing tax equity partnerships will be gradually reduced based on accounting depre- ciation after the flip date. See more regarding tax equity partnerships in note 3.8 ‘Tax equity liabilities’. Ørsted annual report 2022 Financial statements Notes | 4.4 Our tax footprint 4.4 Our tax footprint Payments, corporate taxes DKKm Current year Previous years 247 15 1,263 233 42 720 6 Denmark The UK Germany The Netherlands Taiwan Other countries Total As our business matures, we start to incur corporate taxes in the countries where we operate. Again in 2022, corporate taxes in Denmark are affected by the high volatility of power prices. This affects the Danish corporate taxes due to how we manage our risk. Our corporate taxes in Taiwan derive from gains in our local service companies as well as withholding taxes paid on behalf of the Danish lender. Our tax footprint is an effect of how and where we conduct our business. Local corporate taxes paid We have made significant investments in offshore wind farms in the UK, Germany, the Netherlands, the US, and Taiwan, resulting in the accumulation of large tax assets in recent years. Historically, we have not paid significant taxes in these countries besides the UK. This is changing as the offshore wind farms are being commissioned and generating positive taxable income, resulting currently in paid taxes in more countries. We are also continuously investing in the US. We do, however, not expect to pay material corporate taxes in the US in the near future due to the commercial structures in the US. The funding in the US is carried out applying the US tax equity set-up, which effectively means that tax attributes are transferred to the tax equity partner as repayment and return on investment. See more regarding tax equity partnerships in note 3.8 ‘Tax equity liabilities’. 117 Ørsted annual report 2022 Financial statements Notes | 4.4 Our tax footprint A wind farm life cycle We operate in several countries (see our global footprint in the management’s review). The design of the individual tax regime in each jurisdiction impacts the tax over the life cycle of our investments and thereby the timing of our tax payments. A wind farm life cycle begins with the development phase. This includes opportunity screening, if applicable, bid preparation and obtaining land rights, grid connection, and permits. The latter activities are further matured if an investment decision is made, and the construction phase commences, which includes construction of the wind farm. During both phases, product, people, and property taxes are borne or collected (see our total tax contribution section). Wind farm life cycle example 0 Cash flow Profit (loss) before tax Taxable income Project phases Development ~2-6 years Construction ~2-4 years Operation ~25-30 years Consents and permits Site investigations Capital investment Asset construction Staff and contractors Revenue Operating expenses Profit Indirect taxes Employment taxes Indirect taxes Employment taxes Corporate income taxes Indirect taxes Employment taxes Corporate income taxes 118 Late-life development Decommissioning Indirect taxes Employment taxes When the wind farm is commissioned and put into operation, income and positive cash flows are generated. In many cases, the effect of tax incentives results in a deferral of taxable income compared to profit before tax for accounting purposes. Conversely, once the deferral ends, the taxable income related to the wind farm will exceed the accounting profit. For this reason, the applicable corporate tax rate and cash tax paid will always differ, but accumulated over the lifetime of the wind farm, they will be very similar. Also, in some of the jurisdictions where we operate, there are mandatory or voluntary tax groupings. This means that we will only pay tax on the consolidated result of all of our activities in that country. As a result, continued significant investments in such a country may further defer the time when we pay taxes in that country. Development activities results in negative cash flows in the beginning of the project life cycle. During construction, the capital employed accelerates mate- rially. Positive income begins when the project enters operation. Some corporate income taxes may be paid during development if internal development services are provided between tax jurisdictions. Also, corporate income taxes may be paid during late-life development subject to deductibility of decommissioning costs and joint taxation legislation. Ørsted annual report 2022 Financial statements Notes | 4.4 Our tax footprint Total tax contribution DKKm Profit People Product Property Total 1,813 2,081 2,309 297 Total global taxes paid in 2022 Collected 550 1,886 2,309 Borne 1,263 195 297 1,755 6,500 4,745 Country-by-country reporting In order to increase transparency, we present key figures on tax jurisdiction levels below. Our country-by-country reporting content widely follows the GRI 207: Tax standard. The standard is based on guidance from OECD. In order to ensure internal coherence throughout the annual report, corporate income tax is calculated based on IFRS reporting standards instead of GRI method- ology. The tax incentives provided on green investments defer our tax payments, result- ing in a difference between profit (loss) in the accounts and taxable income during the life cycle of a wind farm. This is applicable in most of the countries where we operate. Total tax contribution The total tax contribution represents our cash tax payments to government revenues, including amounts paid through an agent. Tax does not result in a return of value to Ørsted for a right or asset used in the business. Taxes borne by us are those that represent a direct cost and are reflected in the financial result. Taxes borne are charged to the profit and loss account. Taxes collected are those which are gener- ated by our operations, but do not constitute a tax liability for Ørsted. Ørsted generates the commercial activity that gives rise to the taxes and then collects and administers them on behalf of the tax authorities in the countries where we operate. 119 Profit taxes These include taxes on company profits that are borne (such as corporate income tax) and collected (such as with- holding tax on payments to third parties). People taxes Taxes on employment, both borne and collected (including income tax and social security tax payments). Product taxes Indirect taxes on the production and consumption of goods and services, including net VAT and sales tax, custom duties, and insurance premium tax. Net VAT in countries in a net refund position is excluded in the total tax contribution, as it is considered a repayment of tax al- ready paid within the year. Included are also planet taxes, which are insignificant for this summary. Property taxes Taxes on the ownership, sale, transfer, or occupancy of property. Ørsted annual report 2022 Financial statements Notes | 4.4 Our tax footprint Taxes by country DKKm Taxes borne Taxes collected Europe Denmark 42 3,274 The UK 836 768 Germany 233 36 America The US 246 197 Our total tax contribution in 2022 totalled DKK 6,500 million against DKK 5,590 million in 2021. The increase primarily relates to acquisitions in late 2021 in Ireland and the UK, which increased product taxes, increased activity in our onshore business in the US, which increased property taxes, and an increase in presence in Poland, the US, and Malaysia, which increased people taxes. 120 Taxes by tax type DKKm Taxes borne Taxes collected Profit 1,263 550 Ireland 30 188 The Netherlands 42 22 People 195 1,886 Sweden 2 201 Poland 52 18 Asia Taiwan 256 17 Malaysia 15 24 Singapore 1 0 Product 2,309 Property 297 Total tax contribution DKKm 1,755 4,745 Ørsted annual report 2022 Financial statements Notes | 4.4 Our tax footprint Country-by-country key figures, 2022 Number of employees Total employee remuneration2 DKKm Revenue from third-party sales DKKm Revenue from intra- group trans actions with other tax jurisdictions, DKKm Property, plant, and equipment, and inventory DKKm Balance of intra- company debt DKKm Corporate income tax paid on a cash basis DKKm Denmark The UK The US Germany Ireland The Netherlands Taiwan Malaysia Poland Norway Sweden France Singapore Korea Japan Other countries 1 Total 4,219 1,254 643 331 102 88 185 574 519 - 6 51 13 17 25 - 8,027 3,723 1,015 709 211 54 58 148 143 164 - 6 - 16 19 22 9 6,297 111,020 11,264 2,396 432 937 - 5,439 2 20 - 721 27 19 - - - 132,277 9,713 27,418 71 3,257 - 1,829 65 213 274 - 1 - 45 19 8 - 42,913 18,400 55,005 68,348 13,700 4,797 4,722 24,476 11 1,479 - 146 667 9 - - 8 191,768 36,740 61,775 18,575 17,697 517 4,524 15,264 - 11 - 38 - - 149 69 - 155,359 6 720 1 233 - 42 247 2 9 - 2 - 1 - - - 1,263 Current tax expla- nation on country level, 2022 DKKm Calculated local corporate tax on profit (loss) before tax Non-taxable income and non- deductible costs, net Profit (loss) before tax Unrecognised tax assets Deferred tax Other adjustments Current tax Country-by-country key figures The table shows reporting of financial, economic, and tax-related information for each jurisdiction where we operate. This information can be compared with our total tax contribution. Our tax contributions reflect that some of our development and construction activities have been based in Denmark, and that our operations in the coming years are beginning to ramp up in markets that have been developed. Also, our presence and the corresponding tax position is affected by hedging, which is primarily handled centrally in Denmark. Withholding taxes are reported under the country where the payment is made. Current tax explanation on country level The table shows our profit (loss) before tax in tax jurisdictions and the journey to current tax. Current tax for Denmark is significantly impacted by hedge losses, resulting in an overall tax loss for the year, i.e. a deferred tax asset. See more in the section ‘Accounting policies’ in note 4.3 ‘Deferred tax’. 1 Other countries include Belgium, China, the Isle of Man, Latvia, Spain, and Vietnam. 2 Including employee costs transferred to assets. 8,405 9,876 (3,395) 1,799 305 1,005 (124) 24 7 (21) (85) 27 21 (120) (85) (30) 17,609 (1,809) (1,877) 856 (528) (34) (251) 59 (6) (3) 5 17 (7) (4) 12 37 7 (3,526) 2,213 (23) 7 10 - - 24 (1) (6) 1 - - 1 (12) 20 9 2,243 - (2) (556) (11) - - - - (2) (5) (18) - - (14) (37) (6) (651) (414) (12) (293) 138 (37) (47) (203) - - - 1 - - - - (1) (868) (40) - (7) (12) (4) - (24) 1 2 (1) 1 - (1) 12 (20) (11) (104) (50) (1,914) 7 (403) (75) (298) (144) (6) (9) - 1 (7) (4) (2) - (2) (2,906) Denmark The UK The US Germany Ireland The Netherlands Taiwan Malaysia Poland Norway Sweden France Singapore Korea Japan Other countries 1 Total 121 Ørsted annual report 2022 Financial statements Notes | 5. Capital structure 5. Capital structure An appropriate capital structure is important to ensure we have the ability to raise new debt with attractive terms. 42.7 % Funds from operations (FFO) relative to adjusted interest- bearing net debt amounted to 42.7 % at 31 December 2022 against 26.3 % at 31 December 2021. 30.6 bn Our interest-bearing net debt totalled DKK 30,571 million at 31 December 2022 against DKK 24,280 million at 31 December 2021. 97.8 bn Our liquidity reserve totalled DKK 97,784 million at 31 December 2022 against DKK 43,183 million at 31 December 2021. 122 In 2022, we have issued a total of five new green senior bonds in June and September with a total nominal value of EUR 2,250 million (DKK 16,732 million) and GBP 950 million (DKK 7,963 million). Furthermore in December, we have issued a new green hybrid bond with a nominal value of EUR 500 million (DKK 3,718 million). Part of the proceeds was used to repay a portion of the 6.25 % 3013 hybrid bond. Finally, we significantly increased our short-term credit facilities to ensure access to sufficient liquidity. Also in a scenario with continuous extreme price fluctuations where we could be required to post collateral and make margin payments for the negative value of hedging instruments. We have increased our committed credit facilities from DKK 28.3 billion end of 2021 to DKK 57.2 billion end of 2022. Capital structure To ensure the financial strength to operate in the international energy and capital markets and secure financing on attractive terms, we have defined a capital structure and credit rating target of Baa1/BBB+ and a FFO/adjusted net debt credit metric of around 25 %. Financing policy The aim of our financing policy is to minimise liquidity and refinancing risks, while minimising financing costs and matching the currency composition of our debt with our revenue. The financing markets are diversified among various funding sources and maturities and are primarily con- solidated in the parent company where cash resources are made available to the Group companies via an internal bank. Cash management and liquidity reserve A group-wide cash management set-up ensures optimal allocation of cash in relation to our day- to-day opera- tions and investment programme. We target a liquidity reserve to ensure adequate coverage of budgeted liquidity uses on a rolling 12 month forward-looking basis to limit the company’s sensitivity to unforeseen develop- ments, including unrest in financial markets. Equity and interest-bearing net debt DKKbn Interest-bearing asset Interest-bearing debt Hybrid capital Equity attributable to share- holders in Ørsted A/S Non-controlling interests 2022 47.1 77.7 19.8 71.7 4.0 2021 36.1 60.4 18.0 64.0 3.1 126.1 bn 109.4 bn Ørsted annual report 2022 Financial statements Notes | 5.1 Interest-bearing debt and FFO 5.1 Interest-bearing debt and FFO Interest-bearing debt and interest-bearing assets DKKm 2022 2021 8,913 54,368 63,281 1,236 8,266 2,904 1,196 824 77,707 25,197 16,178 2,471 2,449 713 128 47,136 30,571 16,318 34,677 50,995 1,296 7,532 - 1 534 60,358 21,228 8,624 1,319 4,150 757 - 36,078 24,280 Interest-bearing debt: Bank debt Bond debt Total bond and bank debt Tax equity liability (see note 3.8) Lease liability Other interest-bearing debt: Debt in connection with divestments Debt from receiving collateral under credit support annexes Other interest-bearing debt Total interest-bearing debt Interest-bearing assets: Securities Cash Cash, not available for use Other interest-bearing receivables: Receivables from placing collateral under credit support annexes Receivables in connection with divestments Other receivables Total interest-bearing assets Total interest-bearing net debt at 31 December In 2022, bank debt includes DKK 0 million (2021: DKK 14,207 million) in short- term repo loans. The market value of our bond and bank debt amounted to DKK 53,358 million and DKK 8,483 million, respectively, at 31 December 2022 (2021: DKK 40,292 million and DKK 16,339 million, respectively). The market value of our bond and bank debt is below the carrying amount due to the increase in interest levels since the issuance of the debt. 123 Changes in interest-bearing debt DKKm Interest-bearing debt at 1 January Cash transactions: Instalments on loans Proceeds from raising loans Instalments on leases Change in other interest-bearing debt and tax equity liability Non-cash transactions: Raising lease debt, etc. Bank loans acquired in a business combination Foreign exchange adjustments, amortisation, etc. Interest-bearing debt at 31 December Interest-bearing debt increased by DKK 17,349 million in 2022. Proceeds from raising loans include DKK 0 million (2021: DKK 14,207 million) in rasing short-term repo loans. 2022 2021 60,358 44,447 (22,595) 37,090 (582) 1,291 1,316 437 392 (4,435) 14,582 (520) (797) 2,998 2,273 1,810 77,707 60,358 Ørsted annual report 2022 Financial statements Notes | 5.1 Interest-bearing debt and FFO Funds from operations (FFO) DKKm EBITDA Change in provisions and other adjustments Change in derivatives Variation margin (add back) Reversal of gain (loss) on divestment of assets Income tax paid Interest and similar items, received/paid Reversal of interest expenses transferred to assets 50 % of coupon payments on hybrid capital Dividends received and capital reductions Funds from operations (FFO) 2022 32,057 (2,213) (8,687) 10,332 (10,885) (1,263) (563) (586) (264) 23 2021 24,296 (422) (2,050) (627) (7,920) (1,380) (467) (782) (215) 29 17,951 10,462 Interest-bearing net debt Interest-bearing net debt totalled DKK 30,571 million at the end of 2022, an increase of DKK 6,291 million relative to 2021. The increase in interest-bearing net debt consists of an increase in interest- bearing debt of DKK 17,349 million and an increase in interest -bearing assets of DKK 11,058 million. In January and March, we have entered into a USD 197 million (DKK 1,375 million) and USD 548 million (DKK 3,818 million) loan with Nordic Investment Bank and European Investment Bank, respectively. We have adjusted our definition of FFO/adjusted net debt. We have excluded variation margin payments from our FFO definition to reflect the changes implemented by the rating agencies. Furthermore, we have excluded ’other interest- bearing debt’ and ’other interest-bearing receivables’ from adjusted net debt to align with the common methodology used by the rating agencies. Comparative figures for 2021 are restated in accordance with the new definition of FFO/adjusted net debt. This has reduced the 2021 FFO/adjusted net debt from 31.3 % to 26.3 % Adjusted interest-bearing net debt DKKm Total interest-bearing net debt 50 % of hybrid capital Other interest-bearing debt, add back Other interest-bearing receivables, add back Cash and securities not available for distribution, excluding repo loans Total adjusted interest-bearing net debt Funds from operations (FFO)/adjusted interest-bearing net debt % 2022 30,571 9,897 (4,924) 3,290 3,241 42,075 2021 24,280 8,992 (535) 4,907 2,130 39,774 Funds from operations (FFO)/adjusted interest-bearing net debt 42.7 % 26.3 % We aim to have a long-term FFO/adjusted NIBD at above 25 %, in line with the rating agencies. 124 In June, we issued two new green senior bonds in the amount of EUR 1,350 million (DKK 10,039 million): – EUR 750 million (DKK 5,577 million), 2.875 % interest, maturing in June 2033 EUR 600 million (DKK 4,462 million), 2.25 % interest, maturing in June 2028. – In September, we issued three new green bonds in the amount of EUR 900 million (DKK 6,693 million) and GBP 950 million (DKK 7,963 million): – EUR 900 million (DKK 6,693 million), 3.25 % interest, maturing in September 2031 GBP 575 million (DKK 4,819 million), 5.375 % interest, maturing in September 2042 GBP 375 million (DKK 3,143 million), 5.125 % interest, maturing in September 2034. – – Rating We have a corporate credit rating of BBB+/ Baa1/BBB+, stable outlook, from Standard & Poor’s, Moody’s, and Fitch, which is in line with our target. FFO/adjusted interest- bearing net debt was 42.7 % in 2022, well above our target. Loan arrangements and credit facilities At 31 December 2022, we had bank loan obligations totalling DKK 5,880 million (2021: DKK 1,536 million) to European Investment Bank and Nordic Investment Bank. The loans offered by these multilateral financial institutions cofund specific energy projects with maturities exceeding those normally available in the commercial banking market. Furthermore, we had non-cancellable credit facilities and undrawn loan agreements of DKK 57,179 million at 31 December 2022 (2021: DKK 28,349 million) with a number of Scandinavian, international, and Taiwanese banks. In connection with these loan arrangements and credit facilities, we may be met with demands for cancellation and repayment of any drawn amount in the event of share- holders other than a group consisting of the Danish state and Danish power distribution companies controlling more than 50 % of the share capital or voting rights in Ørsted A/S. Our financing agreements are not subject to any other unusual terms or conditions. Ørsted annual report 2022 Financial statements Notes | 5.1 Interest-bearing debt and FFO Senior bonds issued at 31 December 2022 Million, currency Outstanding amount Green financing Issued DKK Coupon (%) Time of issue Maturing Quoted in 14 June 2022 14 June 2028 Luxembourg EUR EUR EUR EUR GBP GBP GBP GBP GBP GBP GBP NTD NTD NTD NTD NTD √ √ √ √ √ √ √ √ √ √ √ √ √ √ 600 750 900 750 350 750 300 250 1 375 500 575 4,000 4,000 3,000 8,000 8,000 4,462 5,578 6,693 5,577 2,934 6,286 2,514 2,095 3,143 4,191 4,819 907 907 680 1,814 1,814 2.250 1.500 3.250 2.875 2.125 4.875 2.500 24 Nov. 2017 26 Nov. 2029 13 Sep. 2022 13 Sep. 2031 14 June 2022 14 June 2033 16 May 2019 17 May 2027 12 Jan. 2012 12 Jan. 2032 16 May 2019 16 May 2033 CPI+0.375 16 May 2019 16 May 2034 5.125 5.750 5.375 0.920 0.600 0.700 1.500 0.980 13 Sep. 2022 13 Sep. 2034 9 Apr. 2010 13 Sep. 2022 19 Nov. 2019 9 Apr. 2040 13 Sep. 2042 19 Nov 2026 13 Nov. 2020 13 Nov. 2027 13 Nov. 2020 13 Nov. 2030 19 Nov. 2019 19 Nov 2034 13 Nov. 2020 13 Nov. 2040 London Luxembourg Luxembourg Luxembourg London Luxembourg Luxembourg Luxembourg London Luxembourg Taipei Taipei Taipei Taipei Taipei 1 Issued principal is indexed to an outstanding amount of GBP 295 million corresponding to DKK 2,473 million at 31 December 2022. In addition to senior bonds, we have issued a number of hybrid bonds, see note 5.3 ‘Hybrid capital’. Maturity profile of issued senior bonds and bank debt DKK billion Issued bonds Bank debt 9.4 6.7 6.3 8.1 7.4 10.8 3.1 1.4 0.1 0.1 4.5 3.8 2.1 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035+ The majority of our bonds expire in 2031 or later. 125 Accounting policies Bond debt, bank debt, and other payables are recognised at inception at market value (typically proceeds re- ceived) net of transaction costs incurred. In subsequent periods, the liabilities are measured at amortised cost, so that the difference between the cost (proceeds) and the nominal value is recognised in profit (loss) for the year as interest expenses over the term of the loan, using the effective interest rate method. Financial liabilities are classified as current, unless the Group has an uncondi- tional right to defer settlement of the liability to at least one year after the balance sheet date. The market value of issued bonds has been determined as the market value at 31 December (level 1 – quoted prices). The market value of bank loans has been determined as the present value of expected future instalments and interest payments using the Group’s current in- terest rate on loans as the discount rate (level 2 – observable inputs). Ørsted annual report 2022 Financial statements Notes | 5.2 Equity 5.2 Equity Earnings per share DKKm Profit (loss) for the year Interest and costs, hybrid capital owners of Ørsted A/S Non-controlling interests Ørsted’s share of profit (loss) for the year (’000) Average number of outstanding shares Dilutive effect of share programme Average number of outstanding shares, diluted (DKK) Earnings per share Diluted earnings per share 126 2022 2021 14,996 10,887 (577) 130 (740) 75 14,549 10,222 420,209 420,146 233 234 420,442 420,380 34.6 34.6 24.3 24.3 Share capital Ørsted’s share capital is DKK 4,203,810,800 (2021: 4,204 million), divided into shares of DKK 10. The share capital is unchanged from last year. No shares are subject to special rights or restrictions on voting rights. All shares are fully paid up. Owners in Ørsted The Danish state is the principal share- holder with an ownership interest of 50.1 %. In addition, Andel have an ownership interest above 5 %. See note 16 ‘Ownership information’ in the parent company’s finan- cial statements. Treasury shares To secure our share programme, we have acquired treasury shares in accordance with the authorisation approved by the general meeting. The total portfolio of treasury shares consists of 154,344 shares at 31 December 2022 (2021: 209,575), cor- responding to less than 0.1 % of the share capital. Dividends The Board of Directors recommends that dividends of DKK 5,675 million (2021: DKK 5,255 million) be paid for the financial year, corresponding to DKK 13.50 per share (2021: DKK 12.50 per share). The proposed dividends correspond to a dividend yield of 2.1 % (2021: 1.5 %), calculated on the basis of the closing price for an Ørsted share on the last trading day of the year. Dividend yield % 0.9 2.1 1.5 2020 2021 2022 The graph shows the proposed dividends in relation to the closing price for an Ørsted share on the last trading day of the year. Ørsted annual report 2022 Financial statements Notes | 5.2 Equity Reserves 2022 DKKm Reserves at 1 January Exchange rate adjustments Value adjustments of hedging Value adjustments transferred to: Revenue Other operating income – gain on divestment of assets Other operating expenses Financial income and expenses Property, plant, and equipment Tax: Foreign currency translation reserve 1,475 (3,625) - - 574 - - - (1,833) (24,585) - 738 - 102 - - - - (29,935) 11,730 11,970 4,475 - - Tax on hedging and currency adjustments Movement in comprehensive income for the year 851 (2,200) (185) 655 (349) (2,109) Total reserves including tax at 31 December (725) (1,178) (26,694) Total reserves excluding tax at 31 December (1,544) (1,510) (33,000) Reserves 2021 DKKm Reserves at 1 January Exchange rate adjustments Value adjustments of hedging Value adjustments transferred to: Revenue Other operating income Financial income and expenses Property, plant, and equipment Tax: Tax on hedging and currency adjustments Movement in comprehensive income for the year Total reserves including tax at 31 December Total reserves excluding tax at 31 December (3,829) 6,529 - - (243) - - (982) 5,304 1,475 1,507 711 - 1,235 - (3,359) (39,782) - 98 - - 7,174 - - - 717 6,788 (2,544) (25,820) (1,833) (24,585) (2,350) (31,236) 1 Costs of hedging related to basis spread on currency swaps and option premiums included in the hedging reserve amount to DKK 10 million (2021: 376 million). 127 Hedging reserve 1 Hedging of net investments Hedging of revenue Hedging of divestments Hedging of interest Hedging of production assets Foreign currency translation reserve The foreign currency translation reserve comprises: – exchange rate adjustments arising on translation of the financial statements of foreign entities with a currency that is not the Group’s presentation currency – exchange rate adjustments relating to loans that form part of our net investment in such entities – exchange rate adjustments relating to hedging transactions on our net investment in such entities. On realisation or partial realisation of the net investment, the exchange rate adjustments are recognised in profit (loss) for the year if a foreign exchange gain (loss) is realised by the divested entity. The foreign exchange gain (loss) is transferred to the item in which the gain (loss) is recognised. Hedging reserve The hedging reserve covers cash flow hedging of: – energy, currency, and inflation risks associated with revenue and production assets – commodity price and currency risks associated with the construction of offshore wind farms – interest rates associated with loans. In addition, it covers hedging of net investments in foreign operations. Deferred costs of hedging Changes in the basic spread on currency swaps and time value of options are included in deferred costs of hedging. Share premium reserve Retained earnings include the share premium re- serve of DKK 21,279 million (2021: 21,279 million), representing the excess of the amount of sub- scribed-for share capital over the nominal value of these shares in connection with capital injections. Total reserves (24,778) (3,625) (22,783) 11,730 9,449 4,475 (583) (116) (236) (1,689) (26,467) (33,323) (1,956) 6,529 (43,063) 7,174 178 33 (121) 6,448 (22,822) (24,778) (31,866) (460) - 3,786 - (3,197) - - - (129) 460 - - (133) - (736) - 323 - - 86 (327) (460) (589) 574 - 2,578 - - (583) - (439) 1,556 2,130 2,731 45 - 646 - - 33 - (150) 529 574 736 51 - 50 - - - - (116) 15 (51) - - 15 - 168 - - - (121) (11) 36 51 66 Ørsted annual report 2022 Financial statements Notes | 5.3 Hybrid capital 5.3 Hybrid capital Hybrid bonds Type Due in 3013 Subordinated Green due in 3017 Green due in 3019 Green due in 3021 Green due in 3022 Green due in 3021 Subordinated Subordinated Subordinated Subordinated Subordinated Carrying amount DKK 681 million DKK 3,668 million DKK 4,416 million DKK 3,701 million DKK 3,692 million DKK 3,635 million Financial classification Equity Equity Equity Equity Equity Equity Notional amount EUR 94 million (DKK 699 million) EUR 500 million (DKK 3,718 million) EUR 600 million (DKK 4,462 million) EUR 500 milllion (DKK 3,718 million) EUR 500 milllion (DKK 3,718 million) GBP 425 million (DKK 3,562 million) Issued Maturing Quoted in June 2013 June 3013 Luxembourg November 2017 November 3017 Luxembourg December 2019 December 3019 Luxembourg February 2021 February 3021 Luxembourg December 2022 December 3022 Luxembourg February 2021 February 3021 Luxembourg First redemption at par 26 June 2023 24 November 2024 9 December 2027 18 Februar 2031 8 December 2028 18 February 2033 Coupon for the first Ten years fixed at 6.25 % p.a. Seven years fixed at 2.25 % p.a. Eight years fixed at 1.75 % p.a. Ten years fixed at 1.50 % p.a. Six years fixed at 5.25 % p.a. 12 years fixed at 2.5 % p.a. Coupon in subsequent period is adjusted every five years with the five-year euro swap +4.75 % points from 2023-2043 and +5.5 % points after 2043 +1.899 % points from 2024, +2.149 % points from 2029, and +2.899 % points from 2044 +1.952 % points from 2027, +2.202 % points from 2032, and +2.952 % points from 2047 +1.86 % points from 2031 and +2.61 % points from 2056 +2.62 % points from 2028, +2.87 % points from 2033, and +3.62 % points from 2048 Coupon for the first twelve years at 2.5 % p.a., after which it is adjusted every five years with the five-year benchmark gilt +2.136 % points from 2033 and +2.886 % points from 2053 Deferral of interest payment Optional Optional Optional Optional Optional Optional We have issued hybrid capital which is sub- ordinate to our other creditors. The purpose of issuing hybrid capital is to strengthen our capital base and fund our investments. We have issued EUR hybrid bonds with a total nominal value of EUR 2,194 million and GBP 425 million, equivalent to DKK 19,877 million (2021: EUR 1,950 million and GBP 425 million, equivalent to DKK 18,269 million). In 2022, we have issued a new green hybrid bond with a nominal value of EUR 500 mil- lion (DKK 3,718 million). Part of the proceeds was used to repay the 3013 hybrid bond. 128 For all our hybrid bonds, we have the right to defer coupon payments and ultimately decide not to pay them at maturity. Deferred coupon payments become payable, however, if we decide to pay dividends to our shareholders or pay coupon payments on other hybrid bonds. As a consequence of the special terms regarding the hybrid bonds, these are classified as equity, and therefore coupon payments are recognised in equity. Accounting policies Hybrid capital comprises issued bonds that qualify for treatment in accordance with the rules on compound financial instruments due to the special characteristics of the bonds. The notional amount, which constitutes a liability, is recognised at present value, and equity has been increased by the difference between the net proceeds received and the present value of the discounted liability. The carrying amount of the liability component amounted to nil on initial recognition as the only payment obligation is the repayment of the nomi- nal value in 1000 years. Coupon payments are accounted for as dividends, which are recognised directly in equity at the time the payment obligation arises. This is because the coupon is discretionary, and therefore any deferred coupon lapses upon maturity of the hybrid capital. Coupon payments are recognised in the state- ment of cash flows within financing activities. On redemption of hybrid capital, the payment will be distributed between liability and equity, applying the same ratio as when the hybrid capital was issued. This means that the difference between the payment on redemption and the net proceeds received on issue is recognised directly in equity, as the liability portion of the existing hybrid issues will be nil during the first part of the life of the hybrid capital. Ørsted annual report 2022 Financial statements Notes | 5.4 Liquidity reserve 5.4 Liquidity reserve Liquidity reserve Liquidity reserve at 31 December 2022 amounted to DKK 97.8 billion (31 December 2021: DKK 43.2 billion). The financial re- sources were in particular built up during the year to ensure sufficient liquidity to cope with collateral payments and continuing investments in the green transformation. The change in liquidity reserve is due to an increase in cash, available securities, and undrawn credit facilities of DKK 7,554 million, DKK 18,217 million, and DKK 28,830 million, respectively. Collateral and margin postings When we trade in derivatives to execute our hedging strategy, we have two alternatives: – – Trading on exchanges where the market value is settled on an ongoing basis through receipt or placing of collateral. Trading OTC where we accept the credit risk that will occur if we gain on the transaction. We are trading under both type of agree- ments to increase the number of counter- parties with whom we are engaging to achieve the most optimal price. temporary fluctuations in market prices, we actively manage the volume of trades between trading with and without collater- al arrangements. As of 31 December 2022, 31 % (2021: 51 %) of our power and gas trades and 86 % (2021: 82 %) of our currency, inflation, and interest rate hedges had daily margin settlements. To limit cash impact, we also provide non- cash collateral as parent company and bank guarantees, where possible. At the end of December 2022, we had covered EUR 1 billion in collateral for initial margins on energy hedges through a parent company guarantee. Our collateral and margin payments related to trading with derivatives and collateral related to insurance liabilities and escrow accounts have increased from DKK 12.3 billion at 31 December 2021 to DKK 17.3 billion at 31 December 2022. The increase was primarily driven by the large increase in power and gas prices. Collateral payments related to variation margins increased by DKK 10.3 billion and was partly offset by a decrease in initial margins of DKK 3.5 billion during the year and amounted to DKK 12.8 billion at 31 December 2022. To mitigate and limit the potential neg- ative impact on our cash position from Initial margin and variation margin relate to energy hedges, and the credit support 129 annex (CSA) relates to currency, inflation, and interest rate hedges. Other collateral mainly relates to insurance liabilities and escrow accounts. Further securities can be placed as collateral in repo transactions as part of our cash management. Liquidity reserve DKKbn Cash Securities, available Undrawn, non-cancellable credit facilities Dec. 2022 Dec. 2021 97.8 bn 43.2 bn Collateral and margin postings DKKbn Initial margin Variation margin Credit support annex Other collateral Dec. 2022 Dec. 2021 17.3 bn 12.3 bn Ørsted annual report 2022 Financial statements Notes | 5.4 Liquidity reserve Cash and cash equivalents, securities DKKm Cash cf. balance sheet Bank overdrafts that are part of the ongoing cash management 2022 16,178 (3) Total cash and cash equivalents at 31 December, cf. statement of cash flows 16,175 Cash can be specified as follows: Cash cf. balance sheet Cash, not available for use Securities can be specified as follows: Securities, available Securities, not available for use Total securities at 31 December 16,178 2,471 24,428 769 25,197 2021 8,624 (10) 8,614 8,624 1,319 6,210 15,018 21,228 The table shows our cash and securities divided into available and not available for use. Overview of securities DKKm Maturities 0-2 years 2-5 years After 5 years Total carrying amount Fixed rate Floating rate 2022 Fixed rate Floating rate 2021 37 961 1,666 2,664 12,278 6,025 4,230 22,533 12,315 6,986 5,896 25,197 1,293 (1,214) 2,385 2,464 6,642 7,008 5,114 7,935 5,794 7,499 18,764 21,228 The table shows our securities split into maturities and fixed or floating interest rates. The overview includes interest rate swaps used to manage the interest rate risk on the securities. 130 Cash, cash equivalents, and securities Securities are a key element in our liqiudity reserve, and therefore investments are mainly made in liquid AAA-rated Danish mortgage bonds and, to a lesser extent, in other bonds. Most of the securities qualify for repo transactions with the Danish central bank, ‘Danmarks Nationalbank’. Securities not available for use comprise securities pledged as collateral for: – short-term repo loans: DKK 0 million at 31 December 2022 (2021: DKK 14,207 million) – – insurance- related provisions: DKK 381 million at 31 December 2022 (2021: DKK 397 million) trading in financial instruments: DKK 388 million at 31 December 2022 (2021: DKK 414 million). At 31 December 2022, we had received cash collateral in the amount of DKK 1,194 million (2021: DKK 1 million) concerning the positive market value of derivatives. Cash not available for use comprises: – payables for the purchase of gas that has not yet been settled placed on a restricted acount: DKK 2,029 million (2021: DKK 0 million) – – collateral for insurance-related provisions: DKK 38 million (2021: DKK 254 million) collateral for power purchase agreements and trading with financial instruments: DKK 366 million (2021: DKK 825 million) – collateral for other transactions: DKK 38 million (2021: DKK 240 million). Accounting policies Securities comprise bonds that are monitored, measured, and reported at market value on an on going basis in conformity with the Group’s investment policy. Changes in market value are recognised in profit (loss) for the year as financial income and expenses. Purchase and sale of secu- rities are recognised at the settlement date. For listed securities, market value equals the market price, and for unlisted securities, market value is estimated based on generally accepted valuation methods and market data. Divested securities where repurchase agree- ments (repo transactions) have been made at the time of sale are recognised in the balance sheet at the settlement date as if the securities were still held. The amount received is recognised as a liability, and the difference between the sell- ing price and the purchase price is recognised in profit (loss) for the year over the term as interest. The return on the securities is recognised in profit (loss) for the year. Ørsted annual report 2022 Financial statements Notes | 5.5 Maturity analysis of financial liabilities 5.5 Maturity analysis of financial liabilities Maturity analysis of financial liabilities 2022 DKKm Bank loans and issued bonds: – Notional amount – Interest payments Trade payables Derivatives Lease liabilities Tax equity debt Other payables Total payment obligations Maturity analysis of financial liabilities 2021 DKKm Bank loans and issued bonds: – Notional amount – Interest payments Trade payables Derivatives Lease liabilities Tax equity debt Other payables Liabilities relating to assets classified as held for sale Total payment obligations 131 The Group’s cash needs in respect of its financial loans and borrowings are shown in the table. The maturity analysis was determined on 31 December. The maturity analysis is based on undiscounted cash flows, including estimated interest pay- ments. Interest payments are based on market conditions and interest rate hedging entered into on 31 December. The maturity analysis does not include hybrid capital classified as equity. At 31 December 2022, we had issued hybrid capital with a notional amount totalling DKK 19,877 million due after 2026. For further disclosures of lease liabilities, see note 3.3 ‘Intangible assets, and property, plant, and equipment’. 2023 2024 2025-2026 After 2026 2022 3,087 1,883 20,641 32,636 817 150 8,019 67,233 53 1,880 - 13,442 664 158 1,543 17,740 1,487 3,741 - 6,059 1,288 343 489 13,407 59,077 14,721 - 11,288 9,182 1,690 12,810 108,768 63,704 22,225 20,641 63,425 11,951 2,341 22,861 207,148 2022 2023 2024-2025 After 2025 2021 19,375 975 20,231 27,668 738 175 3,826 72 73,060 53 873 - 15,315 579 137 1,011 - 106 1,748 - 1,509 1,083 235 3,459 - 31,669 8,011 - 6,932 8,483 1,988 733 - 51,203 11,607 20,231 51,424 10,883 2,535 9,029 72 17,968 8,140 57,816 156,984 Ørsted annual report 2022 1 The table shows net financial income and expenses, corresponding to our internal reporting. Exchange rate adjustments and hedging contracts entered into to hedge currency risks are presented net under the item ‘Exchange rate adjustments, net’. 2 Exchange rate adjust ments of currency hedging are recognised in revenue and cost of sales with a loss of DKK 349 million (2021: a loss of DKK 238 million). Borrowing costs transferred to property, plant, and equipment under construction are calculated at the weighted average effective interest rate for general borrowing. This amounted to 3.1 % in 2022 (2021: 3.4 %). Accounting policies Market value adjustments of interest rate and currency derivatives that have not been entered into for hedging pur- poses are presented as financial income or expenses. The accounting policy for the tax equity partner’s contractual return is described in note 3.8 ‘Tax equity liabilities’. Financial statements Notes | 5.6 Financial income and expenses 5.6 Financial income and expenses Net financial income and expenses 1 DKKm Interest expenses, net Interest expenses, leasing Interest element of provisions, etc. Tax equity partner’s contractual return Value adjustments of derivatives, net Exchange rate adjustments, net Value adjustments of securities at market value, net Other financial income and expenses Net financial income and expenses Financial income and expenses 2 DKKm Interest income from cash, etc. Interest income from securities at market value Foreign exchange gains Value adjustments of derivatives Other financial income Total financial income Interest expenses relating to loans and borrowings, etc. Interest expenses transferred to assets Interest expenses, leasing Interest element of provisions Tax equity partner’s contractual returns Capital losses on securities at market value Foreign exchange losses Value adjustments of derivatives Other financial expenses Total financial expenses Net financial income and expenses 132 2022 (1,895) (256) (613) (1,134) 1,593 1,343 (1,556) (18) (2,536) 2022 211 157 8,226 6,885 35 15,514 (2,848) 585 (256) (513) (1,134) (1,596) (7,323) (4,800) (165) (18,050) (2,536) 2021 (895) (261) (454) (616) 202 169 (501) 190 (2,166) 2021 160 175 2,994 914 137 4,380 (2,012) 782 (261) (350) (616) (501) (2,962) (514) (112) (6,546) (2,166) Ørsted annual report 2022 Financial statements Notes | 6. Risk management 6. Risk management Market and credit risks are a natural part of our business activities and a precondition for being able to create value. Through our risk management, we monitor these risks and reduce them to an acceptable level. The majority of our income from power generation for the next five years are based on fixed tariffs, guaran- teed minimum prices, or long-term power purchase agreements. Only a small part of our total earnings are exposed to changes in energy prices. We describe the management of this residual risk in this chapter. 35 % Our net inflation risk for assets in operation, under construction, and awarded is 35 % for the period 2023-2032, i.e. if inflation increases by 1.0 percentage point, our long term earnings will increase by 0.65 percentage point. -33.0 bn The value of hedging instruments (mainly power) that will impact EBITDA in the future amounts to a loss of DKK 33,000 million at 31 December 2022 (2021: DKK 31,804 million). +1.5 bn The initial fair value of corporate power purchase agreements (CPPAs) amounts to DKK 1,497 million, which will be recognised as revenue over the remaining life of the CPPAs (2021: DKK 834 million). 133 Unusual year with high energy prices It has been another extraordinary year for the energy markets. Gas prices have remained high during 2022 until at the very end of the year. The main reason for the high gas prices was the low supply of Russian gas as a consequence of the war in Ukraine. The high gas price has also driven the power prices to record-high levels. Currency exposure 2023-2027 1 DKKbn Before hedging After hedging 45.9 Our previous hedging policy implies that the majority of our expected energy price exposure in 2022 was hedged. This has caused a volume-related overhedging, among other things due to the delay of the commissioning of the Hornsea 2 Offshore Wind Farm. Overhedging and ineffective hedges net of our trading result was recognised in other operating expenses with a net loss of DKK 4.6 billion. Trading portfolio We have a limited trading portfolio with the main purpose of opti- mising the execution of hedging contracts and gains from short-term energy price fluctuations. Read more in note 6.7 ‘ Energy trading portfolio’. 13.9 1.0 7.7 7.7 -12.8 GBP USD NTD Energy exposure 2023-2027 2 DKKbn Before hedging After hedging Expected impact on EBITDA from hedges and CPPAs DKKm Deferred for subsequent recognition at 31 December 2022 2023 2024 2025+ Total 106.0 Power and carbon emissions (8,470) (6,737) (12,698) (27,905) 40.3 Gas and oil Inflation Currency Initial fair value of CPPAs Total EBITDA impact from hedges and CPPAs (671) - (108) 207 (906) (202) 30 154 (336) (3,164) 262 1,136 (1,913) (3,366) 184 1,497 (9,042) (7,661) (14,800) (31,503) -1.1 -0.1 Gas and Oil Outright power 6.7 5.9 Spread (power) 1 For USD and NTD, we manage our risk of a natural time spread between front-end capital expenditures and long-term revenue. In the five year horizon, we are therefore seeing that our hedges increase our net exposure to USD, but our hedges reduce the USD risk in the longer horizon. We have a substantial exposure towards EUR. However, we do not deem EUR to constitute a risk, as we expect Denmark to maintain its fixed exchange- rate policy. 2 Energy exposure before hedging is excluding revenue from fixed tariffs and guaranteed minimum prices as these do not contain any energy exposure. Our outright power exposure has increased significantly in 2022 due to the large increase in power prices. Ørsted annual report 2022 Financial statements Notes | 6.1 Market risk policy 6.1 Market risk policy Our most significant market risks relate to: – energy and commodity prices – production variability – foreign exchange rates – interest rates and inflation. power price exposures to a range of 0 % – 70 % in the current year plus the next year. In addition, we will utilise opportunities beyond this period to maximixe value and support commercial initiatives. Under our previous hedging framework, we hedged the next five years with a staircase model with minimum hedge levels of 90 % in the coming year, gradually being reduced each year. A transition period is required to go from the previous risk mandate set-up and into the new. Managing long-term market risks Beyond the period where we actively hedge, our market risk picture is determined by our portfolio of assets and long-term contracts. We actively manage the long-term market risk through the investment decisions we take and contracts we enter into. Our power exposure is partly mitigated through long-term corporate power pur- chase agreements (CPPAs), and we use debt to manage our long-term currency, interest rate, and inflation risks. The overall objective of our risk manage- ment is to: – increase the predictability of the short- term earnings and FFO/NIBD by securing the price of energy and currency protect the long-term real value of ‘shareholders’ investment in Ørsted by matching fixed nominal cash flows from our assets with fixed nominal debt. – New energy hedging framework In light of recent high and volatile energy prices, we no longer deem our previous ap- proach for hedging renewable power price exposure fit-for-purpose. Going forward, we will apply a new approach better suited to the characteristics of our portfolio. The new framework provides a better balance between ensuring short-term financial stability and avoiding adverse impact from the hedges, such as the risk of being overhedged and large collateral postings due to negative market values. With the new approach, we have decided to reduce the hedge level and horizon for renewable 134 Accounting policies in the value of the hedged asset or liability to the extent of the hedged risk. We apply hedge accounting to our energy, commodity, currency, interest, and inflation hedges. Where possible, we use hedging instru- ments which hedge the desired risk one-to-one. The GBP exposure, for example, is hedged using GBP forward exchange contracts, GBP swaps, or GBP loans. Thus, there are no significant sources of ineffectiveness. For currency swaps, the basis spread is accounted for according to the cost of the hedging model. To the extent that a risk needs to be hedged, and if there is no fully effective instrument available in the market, analyses are performed of the expected effectiveness of the hedging instrument before the hedging transaction is concluded. In this case, the ratio between the hedged risk and the hedging instrument may deviate from the one-to-one principle and will be determined as the ratio which most effec- tively hedges the desired risk. We recognise changes to the market value of hedging instruments that qualify for recogni- tion as a hedge of future cash flows in other comprehensive income in the hedging reserve. The majority of our exposure is highly probable forecast transactions. On realisation of the hedged cash flow, the resulting gains or losses are transferred from equity and recognised in the same item as the hedged item. However, on hedging of proceeds from future loans, the resulting gain or loss is transferred from equity over the term of the loan. When we conclude a hedging transaction, and each time we present financial statements thereafter, we assess whether the hedged exposure and the hedging instrument are still financially correlated. If the hedged cash flows are no longer expected to be realised, the in full or partially accumulated value change is transferred to profit (loss) for the year. Ineffec- tive hedges related to energy and commodity exposures are recognised in other operating ex- penses. Ineffectiveness related to other hedges are recognised in financial income or expenses. Changes in the market value of derivatives that are classified as hedges of the fair value of a recognised asset or liability are recognised in profit (loss) for the year together with changes Key accounting estimate Valuation of long-term power purchase agreements When we measure our power purchase agreements at fair value, we use estimates of non-observable prices such as: – production forecasts – intermittency (expected profiled production versus constant (flat) production) – forecasted long-term power prices and exchange rates – forecasted inflation expectations The development in market values is monitored on a continuing basis and reported to the Group Executive Team. Hedge accounting Hedge effectiveness is measured using forecasted production as well as estimates regarding energy prices,intermittency, interest, currency and inflation. For periods where we are close to fully hedged, volume overhedging is possible if the forecasted production does not materialize which will lead to recognition of ineffectiveness. Key accounting judgement Valuation of long-term power purchase agreements We measure our power purchase agreements at fair value, but they cannot always be measured on quoted prices in active markets due to the long duration of the contracts. We use elements of judgements determining models to measure the fair value and we aim to limit the use of subjective estimates and base the fair values on external information including external pricing and benchmark services. Effectiveness of hedge relationship Judgements are used to consider whether forecasted transactions are highly probable exposures as hedged item in a hedge relation- ship, eg. expected production from wind farms, and judgment is applied in whether the hedge instruments applied in the hedge relationships identified are effective. Ørsted annual report 2022 Financial statements Notes | 6.2 Currency risks 6.2 Currency risks Our forward-looking currency exposure from produc tion, sales, investments, and divestments after hedging for the years 2023-2027 can be summarised as shown in the table. Risk after hedging DKKbn GBP: 13.9 sales position USD: 12.8 buy position NTD: 7.7 sales position Effect of price change +10 % -10 % +1.4 -1.3 +0.8 -1.4 +1.3 -0.8 Therefore, a 10 % increase in the GBP/ DKK exchange rate will result in a gain of DKK 1.4 billion over the period 2023-2027, all else remaining unchanged. Our largest currency exposure stems from offshore wind farms in the UK, but our growing activities in the US and Taiwan have increased our exposure to USD and NTD. Principles for managing currency risks Highly certain cash flows in a foreign cur- rency are actively managed within the first five years. Exchange rate risks related to energy revenue in foreign currencies are hedged only after the energy price is hedged. Hence, the GBP exchange rate risk associated with power generation in the UK is hedged when the power price has been hedged. 135 In contrast, cash flows that relate to subsi- dised GBP income from offshore wind farms in the UK, less operating expenses, are hedged on a declining level of hedging over the five- year risk management horizon. The target is to hedge 100 % in year 1, declining by 20 per- centage points each year to 20 % in year 5. GBP exposure Our GBP exposure amounted to DKK 13.9 billion after hedging for the years 2023- 2027. This unhedged GBP exposure stems primarily from subsidised GBP income less operational expenditures. The GBP exchange rate for hedges impact- ing EBITDA in 2023 and 2024 is hedged at an average of GBP/DKK 8.4 and 8.3, respectively. USD and NTD exposures For our USD and NTD exposures from new markets, we have a limited existing port- folio against which we can net construction payments. Therefore, we seek to hedge the exchange rate risk in the near term by swap- ping out the exposure in time. EUR exposure We have a substantial exposure towards EUR, which we assess on a continuous basis. EUR is generally not hedged, as we believe that Denmark will maintain its fixed exchange-rate policy. GBP exposures DKKbn Before hedging After hedging 10.8 10.1 10.4 9.5 6.7 3.9 5.1 4.0 -0.3 -0.4 2022 2023 2024 2025 2026 The graph shows our GBP exposure before and after hedges from: – divestments and investments – green certificates – hedged energy. Development in currency rates DKKbn GBP USD 1.000 900 800 700 600 500 2020 2021 2022 2023 2024 Historical rates Forward rates The graph shows the historic development in spot currency rates for the past three years and the forward rates for 2023 and 2024 as of 31 December 2022. NTD 25 24 23 22 21 20 Ørsted annual report 2022 Financial statements Notes | 6.2 Currency risks Maturity analysis Market value Expected transfers to income statement Currency cash flow hedge accounting 2022 DKKm Contractual principal amount 2023 2024 After 2024 Asset Liability Recognised in comprehensive income EBITDA impact Revenue (GBP) Revenue (USD) Impact on other line items Interest payments (GBP) Currency cash flow hedge accounting 2021 DKKm EBITDA impact Revenue (GBP) Revenue (USD) Divestments (GBP) Impact on other line items Production assets (USD) Interest payments (GBP) 24,199 3 553 31,256 11 14,634 7 1,075 2,953 - 553 7,416 13,830 3 - - - 2022 2023 After 2023 6,706 17 14,634 7 490 8,810 (2) - - 585 15,740 (4) - - - 151 - 32 - 4 - - 101 - (21) - (1,565) - (247) - - 182 2 4 (1,405) - (234) - 103 Ineffectiveness from currency cash flow hedges in 2022 amounts to a gain of DKK 189 million (2021: DKK -20 million) recognised in financial items. 2023 2024 After 2024 (109) 1 4 29 1 - 262 - - 2022 2023 After 2023 (485) - (234) - 47 (463) (457) - - - 56 - - - - 136 Ørsted annual report 2022 Financial statements Notes | 6.2 Currency risks Maturity analysis Market value Currency fair-value hedge accounting 2022 DKKm Contractual principal amount 2023 2024 After 2024 GBP (sell position) USD (sell position) NTD (sell position) Currency fair-value hedge accounting 2021 DKKm GBP (sell position) EUR (sell position) NTD (sell position) 25,983 6,122 5,194 19,046 4,463 6,379 - - - 2022 - 4,463 - - - - 25,983 6,122 5,194 2023 After 2023 - - - 19,046 - 6,379 The fair-value hedges are related to hedges of loans in the balance sheet. Asset - 168 171 130 - 427 Liability (1,047) - - - (4) - Contracts accounted for at fair value through profit or loss (financial items) DKKm Currency 2022 Contractual principal amount Market value Contractual principal amount 2021 Market value Forward exchange contracts 30,549 27 38,080 1 The table shows cash management postions which are not hedge accounted. The positons primarly consist of EUR and to a lesser extent GBP and USD. 137 Ørsted annual report 2022 Financial statements Notes | 6.2 Currency risks Hedging of net investments in foreign subsidiaries DKKm Currency 2022 GBP EUR USD NTD Other Total Currency 2021 GBP EUR USD NTD Other Total Net investment Of which, non-controlling interests Hedged amount in currency Net position Accumulated exchange rate adjustments in equity 54,674 35,004 29,881 14,884 1,892 (2,132) - (1,839) - - (34,536) - (21,916) (6,122) - 136,335 (3,971) (62,574) 74,278 32,861 26,791 8,840 1,763 (2,516) - (555) - - (26,845) (4,463) (13,620) (6,379) - 144,533 (3,071) (51,307) 18,006 35,004 6,126 8,762 1,892 69,790 44,917 28,398 12,616 2,461 1,763 90,155 (3,806) (49) 617 288 (104) (3,054) (1,252) (45) (250) 761 (59) (845) Hedging of net investments in foreign subsidiaries Our foreign activities entail currency risks. We hedge these currency risks by raising loans in foreign currencies and by entering into forward exchange contracts, currency swaps, and options. On 31 December 2022, the accumulated exchange rate adjustments totalled DKK -3,054 million (2021: -845 million), divided between the exchange rate adjustment of the net investment of DKK -1,544 million (2021: 1,510 million) and the hedging thereof of DKK -1,510 million (2021: -2,355 million). Maturity analysis Market value Accounting policies Net investment hedges 2022 DKKm Contractual principal amount GBP (sell poition) USD (sell position) NTD (sell position) Net investment hedges 2021 DKKm GBP (sell poition) EUR (sell position) USD (sell position) NTD (sell position) 34,536 21,916 6,122 26,845 4,463 13,620 6,379 2023 4,895 3,114 - 2022 887 4,463 37 - 2024 After 2024 - 8,919 - 2023 3,047 - 11,406 - 29,641 9,883 6,122 After 2023 22,911 - 2,177 6,379 Asset 1,139 - - - 4 - - Liability - (168) (847) (826) - (359) (427) The net position expresses the accounting exposure. If, for example, the GBP/DKK exchange rate increased by 10 % on 31 December 2022, equity would have increased by DKK 1,801 million, corresponding to 10 % of DKK 18,006 million. Hedging of net investments in foreign subsidiaries Changes in the market value of deriva- tives and loans that are classified as net investment hedges in foreign subsidiaries or associates are recognised in the con- solidated financial statements directly in equity within a separate foreign currency translation reserve. 138 Ørsted annual report 2022 Financial statements Notes | 6.3 Energy and commodity price risks 6.3 Energy and commodity price risks Our forward-looking energy exposure after hedging of produc tion for the years 2023-2027 can be summarised as shown in the table. Risk after hedging DKKbn Power: 40.3 sales position Spread (power): 5.9 Effect of price change +10 % -10 % +4.0 +0.6 -4.0 -0.6 Therefore, a 10 % increase in the power price will result in a gain of DKK 4.0 billion over the period 2023-2027, all else remaining unchanged. Gas and oil activities only have a risk after hedging of DKK 0.1 billion for the period 2023-2027. Introduction to hedging of power We use fixed-volume hedges (settled based on a fixed hourly volume throughout the hedged period) to hedge price risk associ- ated with our power production. The fixed- volume hedges do not fully match the actual hourly production profile delivered by our wind farms. This is referred to as intermittency risk. See ‘Intermittency risk’ graph to the right. 139 Offshore power generation Revenue from power generation from off- shore wind farms mainly comprise: – fixed tariffs in the UK (CfD wind farms), the US, and Taiwan guaranteed minimum prices in Denmark, Germany, and the Netherlands sale of power production at market price from some wind farms in Denmark and the UK guaranteed minimum prices for green certificates in the UK (ROC wind farms) long-term power purchase agreements. – – – – At the end of 2022, fixed tariffs and guaranteed minimum prices covered approx. 76 % (2021: 83 %) of the expected income from offshore wind farms for the period 2023-2027. The reduction is due to a large increase in forward power prices at the end of 2022 compared to 2021, which increased the expected revenue from production settled at market price. The re- maining 24 % of expected income is exposed to energy price risks and concerns sales of power at market price in the UK, Denmark, Germany, and the Netherlands. Onshore power generation A large part of the earnings in Onshore comes from power generation in the US, which comprises tax incentives, such as PTCs or ITCs, and power. The tax incentives have a fixed value. However, there is a price risk associated with the power, which is Intermittency risk Intermittency risk Fixed-volume hedges Volume 1 2 Actual production profile Flat profile in fixed-volume hedges Time The light blue area illu strates the intermittency risk where our actual production is either above or below the fixed volume in our hedges. When the additional value of the production (volume x market price) in area 1 does not match the missing value of the production in area 2, our actual production will not fully match our fixed-volume hedges. Development in power prices DKK DK 1 UK US (ERCOT) 2 4.000 3.000 2.000 4.000 1.000 2020 2021 2022 2023 2024 Historical rates Forward rates 0 3.000 2.000 1.000 0 2020 2021 2022 2023 2024 Historical rates Forward rates The graph shows the historic development in monthly average spot power prices for the past three years and the forward rates for 2023 and 2024 as of 31 December 2022. The graph covers our main markets where we are exposed to power prices. 1 Average of DK1 and DK2. 2 Average of North and West. Ørsted annual report 2022 Financial statements Notes | 6.3 Energy and commodity price risks reduced by entering into CPPAs. The current CPPAs cover approx. 73 % of the expected generation for the period 2023-2027 cal- culated from the time of commissioning of the individual wind farms, if that date is later than the end of 2022. The CPPAs are entered into with large corporates or finan- cial institutions. Furthermore, additional earnings originate from power generation in Ireland, Germany, and France where the assets are either sub- ject to a subsidy scheme, or we have PPAs in place for the majority of the production. Power generation at our CHP plants Our combined heat and power (CHP) plants consist of biomass- and fossil-fuelled plants in Denmark. Heat generation does not give rise to price risks, as the associated costs are covered by the heat customers. However, heat generation entails a price risk for power to the extent to which we generate heat and power simultaneously. The profitability of power generation is determined by the difference between the selling price of power and the purchase price of fuel and, for other fuels than biomass, carbon emission allowances. If the spreads are attractive, we provide condensing power generation in addition to CHP generation. The total net risk associated with power from heat-bound CHP generation for the 2023-2027 period is DKK 5.9 billion after hedging. Commodity risk for construction projects When building a wind farm, we are exposed to the price development in a number of commodities, most significantly steel. Steel element indices have enabled hedging of 140 parts of this risk. We hedged a substantial amount of the steel for foundations that were delivered in 2022, and we will continue to hedge more throughout 2023 as future volumes are being committed. Power sales The price risk associated with power sales is given by the difference between the pur- chase and sales prices and is thus consid- ered to be limited. For our investor power purchase agree- ments, we retain part of the power price risk, and thus we are to some extent exposed to the same risks as for the production from our own share of the wind farms, including volume and intermittency risks. Gas sales The price risk associated with sale of gas stems from differences in the indexing of sales and purchase prices. Our largest gas purchase contracts are mainly indexed to pure gas prices and thus no longer constitute a significant risk. Ørsted´s power price exposure before hedges for 2023-2027 split on markets DKKbn 64.0 50.9 15.3 The UK The US Other The table shows our total exposure towards power prices before hedges for the period 2023-2027. Offshore’s power price exposure DKKbn Before hedging After hedging 20.5 15.3 12.4 3.0 4.4 5.8 9.9 7.8 9.5 7.5 2023 2024 2025 2026 2027 Principles for estimating exposures The table shows the exposure of Offshore’s generation of power before and after hedges. Exposure is calculated as the expected production (or net purchase/sale) times the forward price for the respective years. Ørsted annual report 2022 Financial statements Notes | 6.3 Energy and commodity price risks Energy price cash flow hedge accounting 2022 DKKm Contractual principal amount 2023 2024 After 2024 Asset Liability Recognised in comprehensive income 2023 2024 After 2024 Maturity analysis Market value Expected transfers to EBITDA/CAPEX 32,300 1,071 1,171 46 15 25,452 587 3,721 9 115 30 8,480 - 312 46 9 7,856 922 387 - 6 15,964 149 472 - - 2022 2023 After 2023 5,511 (425) 268 10 - - 6,934 733 3,151 (2) 115 30 2022 6,291 22 396 - - 8,058 644 5,545 - 45 22 (39,641) - (1,596) - - (29,877) (887) (4,409) - - (1) (27,779) (91) (1,915) (35) 2 (8,435) - (672) (35) 1 (6,649) (88) (907) - 1 (12,695) (3) (336) - - 2022 2023 After 2023 (27,032) (15,149) (65) (387) 13 45 21 (38) 162 12 - 21 (6,033) (27) (264) 1 - - (5,850) - (285) - 45 - In 2022, we recognised ineffective hedges in the amount of DKK -4,475 million (2021: DKK -1,074 million) in other operating expenses of which volume-related ineffectiveness related to offshore DKK 3,771 million, inflation-indexed related ineffective hedges DKK 658 million, and other ineffectiveness DKK 46 million. 13,007 279 302 1 - - 2021 Market value (710) (4,507) - (2,073) - (86) Contractual principal amount Market value Contractual principal amount 507 2,668 748 3,264 7,821 69 (803) 2,920 - 3,872 (1,894) - 550 3,027 537 2,836 - 347 EBITDA impact Power swaps and futures Power options Gas swaps, futures, options Carbon emission allowances Oil futures Energy price cash flow hedge accounting 2021 DKKm EBITDA impact Power swaps and futures Power options Gas swaps, futures, options Oil futures Hedging production assets Steel Oil futures Contracts accounted for at fair value through profit or loss (EBITDA) DKKm Energy Oil swaps and options Gas swaps Gas options Power swaps Power options Other 141 Ørsted annual report 2022 Financial statements Notes | 6.4 Inflation and interest rate risks 6.4 Inflation and interest rate risks Inflation and interest rate risk Our earnings mainly stem from a portfolio of Offshore and Onshore assets with a balanced exposure towards inflation and interest rate risk, which helps to provide stability over the business cycle and across inflationary and deflationary environments. Earnings from inflation-indexed and mer- chant assets follow consumer and market prices, thereby protecting against real value loss from increasing inflation and interest rates. Earnings from fixed nominal assets provide cash flow stability and will benefit in periods characterised by deflation and expansionary monetary policy from central banks. A total of ~65 % of our revenue from Offshore and Onshore assets in operation, under construction, and awarded for the period 2023-2032 is expected to increase and decrease with inflation changes. Of this, ~50 % of our revenue is inflation-indexed, mainly from our UK and Polish offshore wind farms, while ~15 % of our revenue is driven by merchant power prices. The remaining ~35 % of revenue is fixed and is there- fore subject to real value loss if inflation increases. 142 This is the case for: – – fixed nominal subsidies from offshore wind assets in Denmark, Germany, the Netherlands, Taiwan, and the US fixed nominal power purchase agree- ments related to onshore wind assets in the US and offshore wind assets in Europe and Taiwan. We have converted part of our UK inflation- linked revenue to fixed nominal revenue with derivatives to create a better match between our GBP revenue and debt at an average retail price index (RPI) rate of 3.6 % for the priod 2024-2037 and an average consumer price index (CPI) rate of 2.7 % for the period 2030-2033. Other EBITDA mainly includes OPEX, COGS, DEVEX, and other operating income from US tax credits and divestment gains. The majority of these items will increase with inflation and is netted with the inflation- indexed revenue, leaving the EBITDA pro- portionally more exposed to fixed nominal cash flows compared to revenue. To mitigate the inflation risk from our fixed nominal exposure, we issue fixed-rate debt and enter into hedges to fix future debt isuances. With active management, we have reduced the fixed nominal exposure to 35 % for EBITDA, net of debt and related hedges. Inflation exposure from Offshore and Onshore assets Fixed nominal Inflation-indexed Merchant 2023-2032 nominal cash flow from Offshore & Onshore assets Active use of debt & hedges to mitigate inflation risk 15 % 50 % 35 % 20 % 30 % 50 % 25 % 40 % 35 % Revenue incl. hedges Other EBITDA EBITDA Debt Hedges of future debt EBITDA, net debt & hedges Ørsted annual report 2022 Financial statements Notes | 6.4 Inflation and interest rate risks Maturity analysis Market value Expected transfers to income statement Cash flow hedge accounting 2022 DKKm Contractual principal amount 2023-26 2027-32 After 2032 Asset Liability Recognised in comprehensive income 22,295 6,244 9,681 6,370 - (3,070) (3,366) 15,678 - - 15,678 478 (3) 2,727 2023 2024 After 2024 - 49 (202) (3,164) 189 2,489 2022-26 2027-31 After 2031 2022 2023 After 2023 31,326 4,379 13,328 14,715 11,503 1,326 - - 6,792 751 2,230 - 2022 Contractual principal amount Market value Contractual principal amount 13,031 2,302 11,098 14,175 2021 Market value 39 - 16 118 713 (1,953) (872) (59) (2,395) (414) 59 - 633 - (414) 59 (25) - - - (2,395) - - (16) 674 We hedge our UK inflation risk related to revenue from ROC and CfD wind farms. Furthermore, we hedge the interest and inflation risk related to divestments. In 2020, we have hedged the interest on expected USD bond debt issuance (USD interest risk) in 2022. The bond issuance occurred in EUR instead, and we have postponed the USD issuance to 2023 and 2024. Due to the postponement, we have recongised ineffec- tiveness of DKK 529 million related to the US interest rate hedges in financial income. EBITDA impact Revenue (UK inflation) Financial items impact Interest payments (fixed) Cash flow hedge accounting 2021 DKKm EBITDA impact Revenue (UK inflation) Divestments (fixed inflation) Divestments (fixed interest) Financial items impact Interest payments (fixed) Contracts accounted for at fair value through profit or loss (financial items) DKKm Interest rate swaps 8,902 1,103 8,833 Interest rate swaps are used to adjust the maturity of our bond portfolio. 143 Ørsted annual report 2022 Financial statements Notes | 6.5 Credit risks 6.5 Credit risks Offsetting of financial assets DKKm Derivatives Trade receivables 2022 Derivatives Trade receivables 2021 Financial assets 43,507 121,693 165,200 79,781 43,203 122,984 Financial liabilities, offset (22,232) (114,438) (136,670) (57,533) (38,009) (95,542) Financial assets in the balance sheet Amounts not offset in the balance sheet: Liabilities with offsetting rights Collateral received Net Offsetting of financial liabilities DKKm 21,275 7,255 28,530 22,248 5,194 27,442 (7,094) (4,515) 9,666 - - 7,255 (7,094) (4,515) 16,921 (6,812) (3,430) 12,006 - - 5,194 (6,812) (3,430) 17,200 Derivatives Trade payables 2022 Derivatives Trade payables 2021 Financial liabilities 60,891 121,661 182,552 101,541 43,816 145,357 Financial assets, offset (22,232) (114,438) (136,670) (57,533) (38,009) (95,542) 38,659 7,223 45,882 44,008 5,807 49,815 (7,094) (2,744) 28,821 - - 7,223 (7,094) (2,744) 36,044 (6,812) (4,973) 32,223 - - 5,807 (6,812) (4,973) 38,030 Financial liabilities in the balance sheet Amounts not offset in the balance sheet: Assets with offsetting rights Collateral provided Net Credit quality of the Group’s counterparties DKKm AAA/Aaa AA/Aa A/A BBB/Baa Other Total credit exposure 144 We are exposed to credit risks from our trading partners and customers. A large part of our counterparty risks concerns major international energy companies and banks. Such trading is regulated under standard agreements, such as EFET and ISDA agree- ments, which feature, for instance, credit rating and netting provisions. Our credit exposure is mainly concentrated on counter- parties in the EU, the UK, Switzerland, and the US. We limit our credit risks by: – rating significant counterparties – – granting credit limits demanding that collateral be furnished or credit security put in place for weak counterparties. The counterparties and credit limits gran- ted are monitored on an ongoing basis. The monitoring is based on the framework established by our Board of Directors and the Group Executive Risk Committee. For the most significant counterparties, an internal rating is assigned in connection with establishing credit limits. The rating is based on information from external credit rating agencies, publicly available information, and our own analyses. We have not suffered losses from any single major counterparty in 2022 or 2021. The credit risks from our financial assets prima rily concern derivatives, cash, secu- rities, and receivables. The assessment is based on the individual counterparty’s ratings with Standard & Poor’s, Moody’s, and Fitch. The figures do not reflect our actual credit exposure, as the positions are calculated before offsetting our debt to such counterparties. 2022 23,351 2,568 23,551 15,665 16,649 81,784 ↖ The table shows our financial assets and liabilities where a share is offset and therefore presented net. Offsetting is typically limited to specific products. ← The AAA/Aaa category covers our position in Danish AAA-rated government and mortgage bonds. The other category primarily consists of trade receivables from customers, such as end users. 2021 18,215 3,385 12,323 14,551 9,056 57,530 Accounting policies We only offset positive and negative values if we are entitled to and intend to settle several financial instruments net. Ørsted annual report 2022 Financial statements Notes | 6.6 Fair value measurement 6.6 Fair value measurement Fair value hierarchy DKKm 2022 Quoted prices Observable input Non-observable input Total 2021 Quoted prices Observable input Non-observable input Total Assets Liabilities Inventories Derivatives Securities Derivatives 3,442 - - 3,442 2,773 - - 14,474 10,200 563 25,237 5,574 9,991 1,229 - 25,197 - 25,197 - 21,228 - 2,773 16,794 21,228 12,871 29,438 15,250 57,559 8,799 32,313 8,677 49,789 145 We measure our securities and derivatives at fair value. A number of our derivatives, mainly power purchase agreements, are measured based on unobservable inputs due to the long duration of the contracts. The most significant non-observable inputs are the long-term US power prices (mainly ERCOT) and German power prices. Valuation principles and key assumptions In order to minimise the use of subjective estimates or modifications of parameters and calculation models, it is our policy to determine fair values based on the external information that most accurately reflects the market values. We use pricing services and benchmark services to increase the data quality. Market values are determined by the Risk Management function, which reports to the CFO. The development in market values is monitored on a continuing basis and reported to the Group Executive Team. Initial fair value from power purchase agreements The initiation fair value from CPPAs consist of the market value of CPPAs purchased as part of a business combination or asset acquisition. The CPPAs lock the power price of the expected power generation over a period of 10-20 years. These contracts are accounted for at fair value. Due to the long duration of these CPPAs, power prices are not observable for a large part of the duration. The initial negative fair value from CPPAs is recognised as revenue in profit or loss in the future period to which the market value relates. In 2022, we have recognised an income of DKK 228 million (2021: DKK 139 million) related to the initial fair value from CPPAs. The total amount of initial fair value as of 31 December 2022 amounts to a loss of DKK 1,497 million (2021: loss of DKK 834 million), which will be recognised as revenue in a future period. Ørsted annual report 2022 Significant non-observable inputs Market values based on non-observable input primarily comprise long-term con- tracts on the purchase or sale of power and gas. Since there are no active markets for the long-term prices of power and gas, the market values have been determined through an estimate of the future prices. Estimating non-observable power prices Since our CPPAs are normally settled on the actual production, and the power prices available in the market are based on a constant production (flat profile), we take into account that our expected production is not constant, and thus our CPPAs will not be settled against a flat profile price (intermittency adjustment). For the majority of our markets, the flat profile power price can be observed for a maximum of four to six years in the market, after which an active market no longer exists. Accounting policies Market values based on quoted prices comprise quoted securities and deriva- tives that are traded in active markets. The market value of derivatives traded in an active market is often settled on a daily basis, thereby minimising the market value presented on the balance sheet. Market values based on observable inputs comprise derivatives where valu- ation models with observable inputs are used to measure fair value. All assets and liabilities measured at market value are measured on a recur- ring basis. In business combinations, gains (losses) at initial recognition of derivatives whose values are based on non-observable inputs are deferred and recognised in the period to which the value relates. Financial statements Notes | 6.6 Fair value measurement Derivatives valued on the basis of unobservable input DKKm Market value at 1 January Value adjustments through profit or loss Value adjustments through other comprehensive income Sales/redemptions Purchases/issues Transferred from quoted prices and observable input Transferred to quoted prices and observable input 2022 (7,448) (322) (6,476) 1,190 (497) (1,773) 639 2021 (82) (374) (5,997) 29 (1,043) (3) 22 Market value at 31 December (14,687) (7,448) Unobservable input per commodity price input DKKm US power prices German power prices Other power prices Gas prices Total The main unobservable inputs are US power prices and German power prices. (7,762) (5,030) (1,825) (70) (14,687) (3,207) (2,914) (1,139) (188) (7,448) Overview of significant unobservable inputs and sensitivities Intermittency adjusted power price Germany (2025-2034) Ireland (2023-2042) US ERCOT (2023-2030) US SPP (2023-2030) US MISO (2023-2023) Power price (DKK) Sensitivity (DKKm) Weight average Monthly minimum Monthly maximum +25 % -25 % 800 874 231 208 399 515 604 92 140 297 1,474 1,820 800 421 622 (2,053) (256) (3,294) (542) (651) +2,053 +256 +3,334 +583 +677 The table shows the significant unobservable inputs used in the fair value measurements categorised as level 3 of the fair value hierarchy, together with a sensitivity analysis as at 31 December 2022. If intermittency- adjusted power prices in Germany as of 31 December 2022 increased/decreased by 25 %, the market value would decrease/increase by DKK 2,053 million. 146 Ørsted annual report 2022 Financial statements Notes | 6.7 Energy trading portfolio 6.7 Energy trading portfolio Overview of the Group’s energy trading portfolio 1 DKKm Power swaps Power options Gas swaps and options Oil swaps and options Other Market trading mandates 2 2022 2021 Contractual Contractual principal amount Market value principal amount Market value 4,683 3,060 3,601 498 74 2,988 10,013 1,430 (807) (6) 4,980 4,724 2,929 434 498 1,618 5,297 (4,093) (731) (58) VaR limit in 2022: DKK 100 million Stress limit in 2022: DKK 400 million Maximum open positions in trading portfolio VaR indicates the largest loss in one trading day at a probability of 95 %. VaR is based on data for the past 45 trading days, with the heaviest weighting being assigned to the most recent trading days. Stress indicates the largest daily loss we risk sustaining with the given portfolio. Stress is based on data from 1 January 2006 to the present day. – Max. 6 TWh of power – Max. 9.5 TWh of gas – Max. 1 million boe of oil – Max. 1.5 million tonnes of carbon emissions – Max. 0.5 million tonnes of coal and biomass 1 The contractual principal amount has been determined as the net position per derivative type. The risks associated with our options are smaller than for our swaps. The market value mostly consists of received exposure from our assets with settlement at maturity, whereas part of the external trade is settled on a daily basis. 2 Trading activities are carried out under mandates approved by the Board of Directors. The mandates comprise a value-at-risk (VaR) mandate and a stress mandate as well as a limit for the maximum positions measured in energy units per product (power, gas, etc.). 3 The graph shows the daily VaR position for the period 2021-2022. VaR reached DKK 280 million on 9 March 2022, causing a passive breach of the Board of Directors’ mandate of DKK 100 million due to the Russian invasion of Ukraine and the large reduction in gas supplies to Europe, causing the European energy prices to spike. In 2022, there were further passive breaches in August due to Russian gas supply cuts and in September-November due to a halt of gas through the Nord Stream 1 and 2 pipelines after the explosions in September. 147 Trading portfolio The purpose of our trading portfolio is to: – – – optimise hedging contracts contribute to increased market insight profit from short-term fluctuations in energy prices. The trading portfolio primarily consists of positions in power and gas. The trading portfolio constitutes a smaller part of our total portfolio of derivatives, and the associated risk is limited. The energy trading portfolio receives the exposure from our assets and takes that exposure into the external market in the most efficient way possible, given the man- dates shown to the left. The overview of the Group’s energy trading portfolio to the left is the net of the internal exposures received from the assets and the external trades in line with internal risk management. Accounting policies Market value adjustments of physical and financial contracts relating to energy that are entered into with the purpose of gener- ating gains from short-term price changes are recognised as revenue. Daily position in the trading portfolio, market trading mandates 3 DKKm Board of Directors’ mandate Value at risk (VaR) 300 250 200 150 100 50 0 2021 2022 Ørsted annual report 2022 Financial instruments are used for various purposes. The purpose determines the category, and whether the value adjust- ment of the instrument should be recog- nised in the profit (loss) for the year or as part of the hedging reserve in equity. The fair value of financial instruments measured at amortised cost is identical to the carrying amount with the excep- tion of bank loans and issued bonds where the market value is stated in note 5.1 ‘ Interest-bearing debt’. Financial statements Notes | 6.8 Categories of financial instruments 6.8 Categories of financial instruments Categories of financial instruments DKKm Energy and currency derivatives Securities Financial assets measured at fair value via the income statement Energy derivatives Interest and inflation derivatives Currency derivatives Derivatives (assets) used as hedging instruments Trade receivables Other accounts receivable Financial assets measured at amortised cost Energy and currency derivatives Financial liabilities measured at fair value via the income statement Energy derivatives Interest and inflation derivatives Currency derivatives Derivatives (liabilities) used as hedging instruments Bank loans and issued bonds Trade payables Other accounts payable Financial liabilities measured at amortised cost The table shows our financial instruments divided into categories. The categories indicate how the financial instruments are recognised in the financial statement. 2022 16,389 25,197 41,586 6,709 1,661 478 8,848 12,701 28,108 40,809 11,165 11,165 41,237 2,083 3,073 46,393 63,281 20,641 11,310 95,232 2021 967 21,228 22,195 14,314 847 666 15,827 9,565 24,111 33,676 8,303 8,303 35,174 2,884 3,428 41,486 50,995 20,231 7,368 78,594 148 Ørsted annual report 2022 Financial statements Notes | 6.9 Sensitivity analysis of financial instruments 6.9 Sensitivity analysis of financial instruments Sensitivity analysis of financial instruments DKKm 31 December 2022 31 December 2021 Price change Effect on profit (loss) before tax Effect on equity before tax Effect on profit (loss) before tax Effect on equity before tax 25 % -25 % 25 % -25 % 25 % -25 % 10 % -10 % 10 % -10 % 10 % -10 % 1 % -1 % (533) 608 (764) 764 (1,791) 1,794 (947) 947 (2,430) 2,430 (743) 743 (899) 899 (332) - 277 (6) 177 (177) (14,382) 14,402 (853) 853 (4,727) 4,727 - - (125) 125 1,224 (2,162) (608) 608 (731) 731 (549) 554 (451) 445 (3,041) 3,041 (134) 134 67 (66) (234) - 32 (32) (375) 375 (12,152) 12,278 (440) 440 (6,421) 6,421 - - 67 (67) 1,737 (4,419) Risk Oil Gas Power USD GBP NTD EUR Interest Inflation 1 % point 1 % point 149 The sensitivity analysis in the table shows the effect of market value changes, assum- ing a relative price change at 31 December 2022. The effect on profit (loss) before tax com- prises financial instruments that remained open at the balance sheet date, and which have an effect on profit (loss) in the current financial year. Effect on equity before tax comprises finan- cial instruments that remained open at the balance sheet date, and which are value- adjusted directly in equity. The illustrated sensitivities only comprise the impacts from our financial instruments. If the hedged exposure had been included in the sensitivity analysis, the effect of a price change would have been reduced or offset entirely. Net investments and associated hedging of net investments in foreign subsidiaries are not included in the table, as the effects of the sum of the investments and the hedging are considered to be neutral to changes in currencies. Financial instruments include derivatives as well as receivables and payables in foreign currencies. A 10 % increase in the currencies hedged in connection with net investments would reduce equity by DKK 6,257 million (2021: DKK 5,131 million). Ørsted annual report 2022 Financial statements Notes | 7. Other notes 7. Other notes 7.1 Related-party transactions Joint ventures DKKm Dividends received Capital transactions, net Receivables Payables Associates DKKm Capital transactions, net Sale of goods and services Purchase of goods and services Receivables Payables Board of Directors DKKm 2022 2021 70 (92) - - (37) 14 (180) - (44) 59 (43) 20 - (22) 6 (136) 1 (17) Purchase of goods and services - (8) Related parties that have control over the Group comprise the Danish state, represented by the Danish Ministry of Finance. Other related parties are the Group’s associates and joint ventures, members of the Board of Directors and the Executive Board, and other senior executives. See note 7.4 ‘Company overview’ for an overview of our joint ventures and associates. Related-party transactions are made on arm’s length terms. Intra-group transactions have been eliminated in the consolidated financial statements. The remuneration and share programmes for the Group Executive Team and the Board of Directors are described in notes 2.7 ‘ Employee costs’ and 2.8 ‘Share- based payment’. Through a directly owned company, Peter Korsholm, board member, has had ordin ary transactions with Danish Oil Pipe A/S, a wholly-owned subsidiary in the Ørsted Group. We use the exemption set out in IAS 24.25 concerning entities in which the Danish state is a related party, and therefore transactions with government-related companies are not disclosed. There were no other related-party trans actions during the period. 150 Ørsted annual report 2022 2022 2021 25 4 3 3 35 37 % 69 % 22 2 7 4 35 41 % 58 % PwC is Ørsted’s auditor appointed by the annual general meeting. PwC audits the consolidated financial statements of Ørsted and our subsidiaries’ statutory financial statements in all the countries where we are represented. Tax and VAT advice primarily included advice in connection with tax due diligence, transfer pricing advice, and advice in con- nection with the preparation and review of tax returns. It is our policy that the annual fee for non- audit services provided by our statutory auditor cannot exceed the annual fee for statutory audit services measured at Group level. The cap may be exceeded subject to approval by the Audit & Risk Committee. Other assurance engagements primarily included reviews of ESG data, assurance ser- vices related to the issuance of bonds, and reviews of regulatory financial statements. Other services included other consultancy services, primarily related to vendor due diligence and leadership support. Fees for services other than statutory audit supplied by PwC Denmark to Ørsted amounted to DKK 7 million (2021: DKK 4 million) and consisted of assurance services related to the issuance of bonds, due diligence, review of ESG data, and other general accounting, tax, and transfer pricing advice. Financial statements Notes | 7.2 Auditor’s fees 7.2 Auditor’s fees Auditor’s fees DKKm Audit and audit-related fees Statutory audit Other assurance engagements Non-audit services Tax and VAT advice Other services Total fees to PwC Fee for non-audit services in percent of statutory audit fee PwC Denmark non-audit service ratio Effective from 1 January 2020, the non-audit services provided by the Group auditor in Denmark cannot exceed 70 %. 151 Ørsted annual report 2022 Financial statements Notes | 7.3 Alternative performance measures 7.3 Alternative performance measures Gross investments Gross investments reflect our total investments in assets and enterprises. It comprises cash flows from investing activities, excluding dividends received from associates, joint ventures, and equity investments, purchase and sale of securities, loans to joint ventures and joint operations, and divestments of assets and enterprises. To this is added acquired debt and restricted cash in connection with acquisitions. Return on capital employed (ROCE) Proposed dividend per share (DPS) EBIT Average capital employed Total proposed dividend Number of shares at year-end Net investments Net investments are gross investments less divestments of assets and enterprises, the selling price for non-controlling interests, and subsequent capital injections from non-controlling interests. Furthermore, interest- bearing debt transferred in connection with a divestment is deducted. Dividend yield Dividend per share (proposed) Share price on the last trading day of the year Average number of shares 1 × Number of days = X1 Funds from operations (FFO) Funds from operations is a supplementary statement for cash flows from operating activities. EBITDA adjusted for gain (loss) on divestment of assets; change in provisions and other adjustments; income tax paid; interest and similar items, received or paid, including capitalised interest expenses; 50 % of coupon payments on hybrid capital; dividends received and capital reductions. Number of days ∑ i=1 Net working capital Net working capital is inventories, contract assets (net), trade receivables, and other current operating assets less trade payables, other current operating liabilities, and working capital elements of tax equity balances. Adjusted interest-bearing net debt Adjusted interest-bearing net debt is interest-bearing net debt plus: – cash and securities not available for distribution (excluding repo loans) – 50 % of hybrid capital Net working capital, excluding trade payables relating to capital expenditure Net working capital, excluding trade payables relating to purchases of intangible assets, and property, plant, and equipment. FFO to adjusted interest- bearing net debt FFO Adjusted interest-bearing net debt Other definitions Free cash flow (FCF) Free cash flows are cash flows from operating activities and divestments less gross investments. Capital employed Capital employed are all assets and liabilities, except for equity and interest-bearing net debt. Average capital employed Capital employed at beginning of year + capital employed at year-end 2 Profit (loss) per share Shareholder’s share of the profit (loss) for the period Average number of shares Diluted profit (loss) per share Shareholder’s share of the profit (loss) for the period Average number of shares, including dilutive effect of free shares 152 Ørsted annual report 2022 Financial statements Notes | 7.4 Company overview 7.4 Company overview Segment/company Parent Company Ørsted A/S Offshore Anholt Havvindmøllepark I/S 3 Borkum Riffgrund 2 Offshore Wind Farm GmbH & Co. oHG Country Denmark Denmark Germany Borssele Windfarm C.V. The Netherlands Gode Wind 1 Offshore Wind Farm GmbH & Co. oHG Gode Wind 2 Offshore Wind Farm P/S GmbH Greater Changhua Offshore Wind Farm SE Ltd2 Greater Changhua Offshore Wind Farm SW Ltd2 Hornsea 1 Limited 2 North East Offshore, LLC Ocean Wind LLC 2 Orsted Borssele Holding B.V. Orsted Hornsea 1 Holdings Limited Orsted Hornsea Project Three (UK) Ltd Orsted Hornsea Two Holdings Ltd Orsted London Array II Limited Orsted North America Inc Orsted Power (UK) Ltd Orsted Race Bank (Holding) Ltd Orsted Taiwan Ltd Orsted Walney Extension Holdings Limited Orsted West of Duddon Sands (UK) Ltd Revolution Wind, LLC Soundmark Wind Limited Walney (UK) Offshore Windfarms Limited West Of Duddon Sands Ørsted Horns Rev 2 A/S Ørsted Vind A/S Ørsted Wind Power A/S 4 Ørsted Wind Power Holding A/S 153 Germany Germany Taiwan Taiwan The UK The US The US The Netherlands The UK The UK The UK The UK The US The UK The UK Taiwan The UK The UK The US The UK The UK The UK Denmark Denmark Denmark Denmark Type 1 Ownership interest JO JO JO JO JO JO S JO JO NC S S S S S S S S S S S S S S JO S S S S 50 % 50 % 50 % 50 % 50 % 50 % 100 % 50 % 50 % 75 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 50 % 50 % 100 % 100 % 100 % 100 % Segment/company Onshore 2W Permian Solar, LLC Haystack Wind Project, LLC Helena Wind, LLC Lincoln Land, LLC Old 300 Solar Center, LLC Orsted Onshore Ireland Green Energy Limited Western Trail Wind, LLC Ørsted Onshore Holding A/S Bioenergy & Other Orsted AB Orsted Power Sales (UK) Limited Orsted Sales (UK) Limited Ørsted Bioenergy & Thermal Power A/S 4 Ørsted Salg & Service A/S 4 Shared functions Ørsted North America Holding A/S Ørsted Wind Power TW Holding A/S Country The US The US The US The US The US Ireland The US Denmark Sweden The UK The UK Denmark Denmark Denmark Denmark Type 1 Ownership interest S S S S S S S S S S S S S S S 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 1 S = subsidiary, A = associate, JO = joint operation, JV = joint venture, NC = non-consolidated entity 2 The company is owned through a company which is not owned 100 % by Ørsted. The disclosed ownership interest is Ørsted’s ultimate ownership interest in the company. 3 The company applies the provision in section 5 or section 6 of the Danish Financial Statements Act to omit presenting a separate annual report. 4 Subsidiaries owned directly by Ørsted A/S. 5 One or more tax equity partners own an insignificant share of the company. See note 3.8 ‘Tax equity liabilities’. The company is fully consolidated. Companies without significant activities are not included in the list. A full comprehensive list of companies is available at: https://orsted.com/company-overview Ørsted annual report 2022 Financial statements Notes | 7.5 Events after the reporting period 7.5 Events after the reporting period In January 2023, Ørsted signed an agreement to acquire Public Service Enterprise Group’s (PSEG) 25 % equity stake in the 1,100 MW offshore wind energy project Ocean Wind 1. The acquisition provides Ørsted with 100 % ownership of Ocean Wind 1. The transaction between Ørsted and PSEG is expected to close in the first half of 2023, pending the required closing conditions. 154 Ørsted annual report 2022 Financial statements Consolidated ESG statements (additional information) 156 Basis of reporting 157 ESG performance indicators 160 Accounting policies 155 This year, we made a first-of-its-kind agreement with North America’s Building Trades Unions to construct our US offshore wind farms with a union workforce based in the US. The agreement sets a high bar for working conditions, injects millions of dollars into the economy, creates training and job opportunities for those most impacted by environmental injustice, and ensures our projects will be built by the safest and best-trained workers in the US. Ørsted annual report 2022 Financial statements Consolidated ESG statements (additional information) | Basis of reporting Basis of reporting In the consolidated ESG statements, we present our results, objectives, and accounting policies for the ESG data, including business drivers and taxonomy-aligned data, which is presented in the management’s review in this report. Consolidated environmental, social, and governance (ESG) statements Our full ESG data set can be seen in the independent publication ‘ESG performance report 2022’. The ESG performance report also includes additional information, such as selected ESG indicators by country and all ESG accounting policies, including a list of references for conversion factors used in calculations. Scope and consolidation Unless otherwise stated, ESG data is reported on the basis of the same principles as the financial statements. Thus, the consolidated ESG statements include consolidated data from the parent company Ørsted A/S and subsidiaries controlled by Ørsted A/S. Joint operations are also included with Ørsted’s proportionate share. Data from associates and joint ventures is not included. The consolidation of safety data deviates from the above-described principles. Safety data is collected using an operational scope. This means that irrespective of our owner- ship share, we include 100 % of injuries and hours worked, etc., arising from all opera- tions where Ørsted is responsible for safety, 156 Taxonomy Regulation (EU) 2020/852 In line with Regulation (EU) 2020/852, we disclose our taxonomy-aligned share of revenue (turnover), CAPEX, and OPEX for 2022. The results and full details, including accounting policies, can be found in the ESG performance report 2022 (orsted.com/ ESGperformance2022), and highlights are presented as part of the sustainability pro- grammes in the sustainability report 2022. Business changes in 2022 affecting ESG data There were no material business changes impacting the ESG data in 2022. New ESG indicators in 2022 consolidated ESG statements – Taxonomy-aligned revenue, CAPEX, OPEX, and EBITDA. Gender with lowest representation (female): senior directors and above and people leaders. including safety related to external suppli- ers. Data from acquisitions and divestments is included or excluded from the date of acquisition or divestment. Danish Financial Statements Act, sections 99 a, 99 b, and 107 d Pursuant to section 99 a of the Danish Finan- cial Statements Act (Årsregnskabsloven), Ørsted is under an obligation to account for the company’s sustainability activities and report on business strategies and activities with regard to human rights, labour rights, anti-corruption, the environment, and the climate. By publishing our sustainability re- port (orsted.com/sustainability2022), Ørsted complies with section 99 a of the Danish Financial Statements Act. Ørsted’s work for increased gender diver sity at leadership level is reported in accordance with section 99 b of the Danish Financial Statements Act in our ESG performance report 2022 (orsted.com/ESGperformance2022). – Reporting on diversity in accordance with section 107 d of the Danish Financial State- ments Act can be seen in our sustainability report (orsted.com/sustainability2022). 15.1 GW Our installed renewable capacity increased by 17 % from 2021 to 2022. We have a target of ~50 GW installed renewable capacity in 2030. 91 % The green share of our heat and power generation increased to 91 % in 2022. We have a target of 99 % in 2025. 60 g CO2e/kWh Our scope 1 and 2 greenhouse gas intensity was 60 g CO2e/kWh in 2022. Our targets are to reach 10 g CO2e/kWh in 2025 and 1 g CO2e/kWh in 2040. 73 % In 2022, 73 % of Ørsted’s revenue was associated with taxonomy-aligned activities. Our full ESG data set can be seen in the ESG performance report 2022 (orsted.com/ESGperformance2022) Ørsted annual report 2022 Financial statements Consolidated ESG statements (additional information) | ESG performance indicators ESG performance indicators Taxonomy-aligned KPIs Taxonomy-aligned revenue (turnover) Taxonomy-aligned CAPEX Taxonomy-aligned OPEX Taxonomy-aligned EBITDA (voluntary) Business drivers Installed renewable capacity Offshore Onshore Other (incl. PtX) Decided (FID’ed) renewable capacity Offshore Onshore Other (incl. PtX) Awarded and contracted renewable capacity Offshore Onshore Sum of installed and FID’ed renewable capacity Offshore Onshore Other (incl. PtX) Firm renewable capacity (installed, FID’ed, and awarded/contracted capacity) Total heat and power generation Power generation – Offshore – Onshore – Bioenergy & Other Heat generation, Bioenergy & Other 157 Unit % % % % MW MW MW MW MW MW MW MW MW MW MW MW MW MW MW MW GWh GWh GWh GWh GWh GWh 2022 2021 73 99 80 85 66 1 99 1 80 1 90 1 Target 2022 2021 ~50 GW (2030) 15,121 12,977 ~30 GW (2030) ~17.5 GW (2030) 2 ~2.5 GW (2030) 8,871 4,175 2,075 4,340 2,196 2,072 72 11,222 11,157 65 19,461 11,067 6,247 2,147 30,683 42,009 35,641 16,483 13,146 6,012 6,368 7,551 3,351 2,075 4,725 3,386 1,337 2 8,435 8,435 - 17,702 10,937 4,688 2,077 26,137 36,957 29,050 13,808 8,352 6,890 7,907 Taxonomy-aligned KPIs Our share of revenue (turnover) associated with taxonomy-aligned activities in 2022 was 73 %. This proportion included revenue from our wind and solar farms (65 %) and from our sustainable biomass-based generation activities at our combined heat and power (CHP) plants (8 %). Business drivers The installed renewable capacity increased by 17 % in 2022 due to the commissioning of Hornsea 2 (offshore wind, 1,320 MW), Haystack (onshore wind, 298 MW), Helena Wind (onshore wind, 268 MW), Kennoxhead (onshore wind, 62 MW), Ford Ridge (onshore wind, 121 MW) and the acquistion of Ostwind (75 MW). The total energy generation increased by 14 % in 2022, driven by increased offshore and onshore generation capacities and higher offshore wind speeds. Offshore wind power generation increased by 19 % to 16.5 TWh in 2022. The increase was mainly due to generation from Hornsea 2 commissioned in 2022 and higher wind speeds. Onshore power generation increased by 57 % to 13.1 TWh in 2022. The increase was due to additional generation from our new onshore wind farms installed in 2022 and full-year effects from wind farms installed in 2021. It was also due to the full-year effect from the two US solar farms com- missioned in 2021 and a new solar farm coming online in 2022. Heat and power generation in Bioenergy & Other decreased by 16 % in 2022. This was due to lower heat demand in 2022 as a result of warmer weather and a decrease in power generation from the CHP plants due to the lower heat demand, partly offset by increased condensing power generation due to higher power spot prices. 1 2021 numbers are taxonomy-eligible proportions. 2 The 17.5 GW (2030) target is for onshore wind power, solar PV, and battery storage combined. Ørsted annual report 2022 Financial statements Consolidated ESG statements (additional information) | ESG performance indicators Business drivers (continued) Green share of energy generation – Bioenergy & Other Offshore Generation capacity Wind speed Wind speed, normal wind year Availability Load factor Power sales Onshore 1 Wind speed Wind speed, normal wind year Availability, wind Load factor, wind Availability, solar PV Load factor, solar PV Bioenergy & Other Degree days, Denmark Gas sales Power sales Ørsted Power sales 2 Environment Unit % % MW m/s m/s % % GWh m/s m/s % % % % Number GWh GWh GWh Direct greenhouse gas (GHG) emissions (scope 1) Thousand tonnes CO2e Indirect GHG emissions (scope 2), location-based Indirect GHG emissions (scope 2), market-based Indirect GHG emissions (scope 3) – Category 2: Capital goods 4 – Category 3: Fuel- and energy-related activities 5 – Category 11: Use of sold products 6 – Other GHG intensity (scope 1 and 2) GHG intensity (scope 1, 2, and 3) Thousand tonnes CO2e Thousand tonnes CO2e Thousand tonnes CO2e Thousand tonnes CO2e Thousand tonnes CO2e Thousand tonnes CO2e Thousand tonnes CO2e g CO2e/kWh g CO2e/kWh 158 Target 2022 2021 99 (2025) 91 68 90 76 4,672 3,970 9.5 9.7 94 42 9.1 9.7 94 39 33,745 25,020 7.4 7.3 93 40 98 25 7.4 7.6 96 42 96 24 2,548 31,637 5,399 2,820 61,349 8,797 33,745 25,020 Target 2022 2,510 45 1 50 % reduction (2032) 3 10,983 90 % reduction (2040) 3 10 (2025) , 1 (2040) 2.9 (2040) 7 1,456 1,836 7,309 382 60 147 2021 2,142 53 1 18,179 1,621 2,011 14,206 341 58 165 Business drivers (continued) The green share of energy generation increased to 91 % in 2022. This was primarily due to increased renewable generation from offshore wind, onshore wind, and solar PV, partly offset by reduced generation from sustainable biomass. Our target is 99 % green energy generation by 2025. Offshore wind speeds were slightly higher in 2022, while availability continued to be at 94 %, resulting in the load factor increasing by 3 percent- age points to 42 % in 2022. Onshore wind speeds were the same in 2022 as in 2021. Availability and load factor decreased by 3 percentage points and 2 percentage points in 2022, respectively. Gas sales decreased by 48 % to 31.6 TWh in 2022. This was primarily due to lower UK sourcing volumes and lower offtake on our Gazprom Export supply contract. Power sales (Offshore) increased by 8.7 TWh to 33.7 TWh in 2022, primarily due to increased volumes sold from third-party wind farms where we are responsible for balancing and increased volumes sold on behalf of our partners. Power sales (Bioenergy & Other) decreased by 3.4 TWh to 5.4 TWh in 2022, primarily due to the phasing out of our UK B2B business. Environment Our greenhouse gas (GHG) intensity (scope 1 and 2) increased by 3 % to 60 g CO2e/kWh in 2022 due to increased GHG emissions from coal consumption, partly offset by increased energy generation. Coal consumption increased due to the energy crisis in Europe and a fire in a wood pellet silo at Studstrup Power Station. We are well on track to meeting our target of a GHG emission intensity of no more than 10 g CO2e/kWh in 2025, assuming we are allowed by the Danish authorities to close down our coal- based generation in 2024. Our scope 3 GHG emissions were reduced by 40 % from 2021 to 2022. The main driver for this was the 48 % decrease in gas sales. 1 For 2021, data is shown for US only. 2 Offshore is responsible for Ørsted’s total power sales, including internal power sales to Bioenergy & Other, which are eliminated at Group level. 3 A reduction from the adjusted base year 2018. 4 Primary source of emissions: upstream GHG emissions from new assets commissioned. 5 Primary source of emissions: regular power sales. 6 Primary source of emissions: natural gas sales. 7 Excludes scope 3 emissions from use of sold products (natural gas sales). Ørsted annual report 2022 Financial statements Consolidated ESG statements (additional information) | ESG performance indicators Social Employees Total number of employees (as of 31 December) – Gender with lowest representation (female), senior directors and above – Gender with lowest representation (female), people leaders – Gender with lowest representation (female), all employees Average number of employees during the year Employee satisfaction Safety Unit FTEs % % % FTEs Index 0-100 Total recordable injury rate (TRIR) Injuries per million hours worked 2.5 (2025) Fatalities Governance Board of Directors, Ørsted A/S Independent board members Members, female Members, male Gender with lowest representation (female) Group Executive Team Members, female Members, male Gender with lowest representation (female) Substantiated whistle-blower cases – Cases transferred to the police Number % Number Number % Number Number % Number Number 159 Target 2022 2021 8,027 6,836 40 (2030) 40 (2030) 40 (2030) Top 10 % 1 22 31 33 7,428 76 3.1 0 19 30 31 6,508 77 3.0 0 2022 2021 88 3 5 38 3 8 27 8 1 88 3 5 38 2 4 33 5 0 Social The number of employees increased by 17 % from 2021 to 2022 due to growth in both existing and new markets. Employee satisfaction continued to be high. With a satisfaction and motivation score of 76 in 2022, we were above our external survey provider’s benchmark but below our target of being in the top 10 % compared to our benchmark peer group. Our total recordable injury rate (TRIR) increased from 3.0 in 2021 to 3.1 in 2022. The increase was driven by an increased amount of TRIs among con- tractor employees, partly offset by a reduction in TRIs from our own employees. Total hours worked was at the same level in 2022 as in 2021. As part of our efforts to improve safety, dedicated TRIR reduction plans have been implemented in 2022, including increased leadership involvement and leadership interventions, safety stand-downs, and targeted safety campaigns on specific issues. Governance Our employees and other associates may report serious offences, such as cases of bribery, fraud, and other inappropriate or illegal conduct, to our whistle-blower scheme or through our manage- ment system. In 2022, eight substantiated cases of inappropri- ate or unlawful behaviour were reported through our whistle-blower scheme. Six cases related to violations of our ‘Good business conduct policy’, while one case concerned IT security, and one case concerned workplace environment. None of the reported cases were critical to our business, nor caused adjustments to our financial results. One case required a police report. 1 Our target is to have an employee satisfaction survey result in the top ten percentile compared to an external benchmark group. Ørsted annual report 2022 Financial statements Consolidated ESG statements (additional information) | Accounting policies Accounting policies Taxonomy-aligned KPIs Taxonomy-aligned revenue (turnover) The share of our taxonomy-aligned revenue (turnover) is calculated as the revenue derived from products or services associated with taxonomy-aligned economic activities as a proportion of our total revenue (see p. 85). Taxonomy-aligned CAPEX The share of our taxonomy-aligned CAPEX is calcu- lated as the CAPEX related to assets or processes associated with taxonomy- aligned economic activities as a proportion of our CAPEX that is accounted for based on IAS 16 (73: (e)(i) and (iii)), IAS 38 (118: (e)(i)), and IFRS 16 (53: (h)) and thereby included in ‘Additions’ and ‘Addition on acquisition of enterprises’ (see p. 97). Carbon emission allowances have been excluded from the total CAPEX (DKKm) as these are of an operational nature. Goodwill has also been excluded. Taxonomy-aligned OPEX The share of our taxonomy-aligned OPEX is calculated as the OPEX related to assets or processes associated with taxonomy-aligned economic activities as a pro- portion of our OPEX that is included in ‘Other external expenses’ (see p. 71). We have chosen to use ‘Other external expenses’ as this is currently the best-available OPEX number in our Group financial accounts that is related to the OPEX KPI definition in the regulation. Taxonomy-aligned EBITDA (voluntary) This is a voluntary disclosure. The share of our taxonomy -aligned EBITDA is calculated as the EBITDA derived from products or services associated with taxonomy-aligned economic activities as a proportion of our total EBITDA (see p. 71). We have included taxonomy-aligned EBITDA as a voluntary disclosure as EBITDA better reflects our busi- ness than revenue. This is because we have an uneven margin on our revenue, where our gas business and sale of power to end customers have a large revenue but a small earnings margin, whilst other areas have a higher margin. 160 Business drivers Installed renewable capacity The installed renewable capacity is calculated as re- newable gross capacity installed by Ørsted accumulat- ed over time. We include all capacities after commer- cial operation date (COD) has been reached, and where we had an ownership share and an EPC (engineering, procurement, and construction) role in the project. Capacities from acquisitions are added to the installed capacity. For installed renewable thermal capacity, we use the heat capacity as heat is the primary outcome of thermal energy generation, and as bioconversions of the combined heat and power plants are driven by heat contracts. Decided (FID’ed) renewable capacity Decided (FID’ed) capacity is renewable capacity where a final investment decision (FID) has been made. Awarded and contracted renewable capacity The awarded renewable capacity is based on the capacities which have been awarded to Ørsted in auctions and tenders. The contracted capacity is the capacity for which Ørsted has signed a contract or power purchase agreement (PPA) concerning a new renewable energy plant. We include the full capacity if more than 50 % of PPAs or offtake are secured. Acquired projects with pre-FID capacity are also included in the awarded and contracted renewable capacity. Power generation capacity Power generation capacity for an offshore wind farm is calculated and included from the time when the individual wind turbine has passed a 240-hour test. The offshore wind farms Gunfleet Sands 1 & 2 and Walney 1 & 2 have been consolidated according to ownership interest. Other wind farms have been finan- cially consolidated. Wind speeds Wind speeds for the areas where Ørsted’s offshore and onshore wind farms are located are provided to Ørsted by an external supplier. Wind speeds are weighted on the basis of the capacity of the individual wind farms and consolidated to an Ørsted total for offshore and onshore, respectively. ‘Normal wind speed’ is a his- torical wind speed average (over a minimum 20-year period). Availability Availability is calculated as the ratio of actual produc- tion to the possible production, which is the sum of lost production and actual production in a given period. The production-based availability (PBA) is impacted by grid and wind turbine outages, which are technical production losses. PBA is not impacted by market- requested shutdowns and wind farm curtailments as these are due to external factors. Heat and power generation Power generation from wind and solar farms is de- termined as generation sold. The offshore wind farms Gunfleet Sands 1 & 2 and Walney 1 & 2 have been consolidated according to ownership interest. Other wind farms, solar farms, and CHP plants have been financially consolidated. Thermal power generation is determined as net generation sold, based on settlements from the official Danish production database. Data for generation from foreign facilities is provided by the operators. Heat (including steam) generation is measured as net output sold to heat customers. Load factor The load factor is calculated as the ratio between actual generation over a period relative to potential generation, which is possible by continuously exploit- ing the maximum capacity over the same period. The load factor is commercially adjusted. This means that the offshore wind farm has been financially compen- sated by the transmission system operators when it is available for generation, but the output cannot be supplied to the grid due to maintenance or grid interruptions. New offshore wind turbines are included in the calculations of availability and load factor once they have passed a 240-hour test. Onshore wind tur- bines are included once they have passed commercial operation date (COD). Degree days The number of degree days expresses the difference between an average indoor temperature of 17 °C and the outside mean temperature for a given period. It helps compare the heat demand for a given year with a normal year. Sales Sales of gas and power are calculated as physical sales to retail customers, wholesale customers, and exchanges. Sales are based on readings from Ørsted’s trading systems. Internal sales to our CHP plants are not included in the statement. Environment Green share of energy generation The green (renewable energy) share of our heat and power generation is calculated on the basis of the energy sources used and the energy generated at the different assets. For combined heat and power (CHP) plants, the share of the specific fuel (e.g. sustainable biomass) is calcu- lated relative to the total fuel consumption for a given plant or unit within a given time period. The specific fuel share is then multiplied by the total heat and power generation for the specific plant or unit in the specific period. The result is the fuel-based generation for the individual unit, for example the sustainable biomass-based generation of heat and power from the CHP plant unit within a given time period. The percentage shares of the individual energy sources are calculated by dividing the generation from the individual energy source by the total generation. The following energy sources and fuels are considered to be renewable energy: wind, solar PV, sustainable biomass, biogas, and power sourced with renewable energy certificates. The following energy sources are considered to be fossil energy sources: coal, natural gas, and oil. Green share of energy generation, Bioenergy & Other This is calculated as the green share of heat and power generation, but is only shown for the business unit Bioenergy & Other. Ørsted annual report 2022 Substantiated whistle-blower cases Ørsted’s whistle-blower hotline is available for internal and external reporting of suspected cases of inappro- priate or illegal behaviour. Whistle-blower cases are received and handled by the Internal Audit function, which also receives similar reports through the man- agement system and from compliance officers. All reports are managed in accordance with the guidelines for the handling of whistle-blower reports approved by the Audit & Risk Committee, which is ultimately responsible for the whistle-blower scheme. Only cases which are closed during the financial year, and which have been reported to the Audit & Risk Committee as fully or partially substantiated, are reported. Cases transferred to the police Cases transferred to the police are defined as the num- ber of substantiated whistle-blower cases which have been transferred to the police. Financial statements Consolidated ESG statements (additional information) | Accounting policies Greenhouse gas (GHG) intensity GHG intensity (scope 1 and 2) is calculated as total scope 1 and scope 2 (market-based) emissions divided by total heat and power generation, revenue, and EBITDA, respectively. GHG emissions from capital goods include upstream GHG emissions from acquired and installed wind and solar farms in the month when the wind or solar farm has reached commercial operation date (COD). Carbon emissions are included from cradle to operations. GHG intensity (scope 1, 2, and 3) is calculated as total scope 1, scope 2 (market-based), and scope 3 (exclud- ing natural gas sales) emissions divided by total heat and power generation. Scope 1 and 2 greenhouse gas (GHG) emissions Scope 1 and 2 GHG emissions are calculated based on the Greenhouse Gas Protocol. Scope 1 GHG emissions include all direct emissions of greenhouse gases from Ørsted: carbon dioxide, methane, nitrous oxide, and sulphur hexafluoride. The direct carbon emissions from the combined heat and power plants are determined on the basis of the fuel quantities used in accordance with the EU Emissions Trading System (ETS). Carbon dioxide and other greenhouse gas emissions outside the EU ETS scheme are, for the most part, calculated as energy consumption multiplied by emission factors. Scope 2 GHG emissions include the indirect GHG emis- sions from the generation of power, heat, and steam purchased and consumed by Ørsted. Scope 2 emissions are primarily calculated as the power volumes pur- chased multiplied by country-specific emission factors. Location-based emissions are calculated based on average emission factors for each country, whereas market-based emissions take the renewable power purchased into account and assume that the regular power is delivered as residual power where the renew- able part has been taken out. Scope 3 greenhouse gas (GHG) emissions Scope 3 GHG emissions are reported based on the Greenhouse Gas Protocol, which divides the scope 3 inventory into 15 sub-categories. GHG emissions from fuel- and energy-related activities are calculated based on actual fuel consumption and power sales, multiplied by relevant emission factors. We include all power sales to end customers and use separate emission factors for green (with renewable certificates) and regular (without renewable certifi- cates) power sales. GHG emissions from use of sold products are calcu- lated based on actual sales of gas to both end users and wholesalers as reported in our ESG consolidation system. The total gas sale is divided into natural gas, LNG, and biogas, which have specific upstream and downstream emission factors. ‘Other’ includes GHG emissions from: – category 1: Purchased goods and services – category 4: Upstream transportation and distribution – category 5: Waste generated in operations – category 6: Business travel – category 7: Employee commuting – category 9: Downstream transportation and distribution. Social Employees Employee data is recognised based on records from the Group’s ordinary registration systems. The number of employees is determined as the number of employ- ees at the end of each month converted to full-time equivalents (FTEs). Employees who have been made redundant are recognised until the expiry of their notice period, regardless of whether they have been released from all or some of their duties during their notice period. ‘Gender with the lowest representation (female)’ represents the gender distribution of our senior directors and above, our people leaders, and the total workforce in Ørsted. Employee satisfaction Ørsted conducts a comprehensive employee satis- faction survey once a year. With a few exceptions, all Ørsted employees are invited to participate in the sur- vey. The following employees are omitted from the sur- vey results: employees who joined the company shortly before the employee satisfaction survey, employees who resigned shortly after the employee satisfaction survey, interns, consultants, advisers, and external temporary workers who do not have an employment contract with Ørsted. Safety Occupational injuries are calculated according to op- erational scope. Data from companies wholly or partly owned by Ørsted and where Ørsted is responsible for safety is included. Occupational injuries and lost-time injuries are calculated for both our own employees and our contractors. Data from all Ørsted locations are recognised. The total recordable injury rate (TRIR) is calculated as the number of total recordable injuries per one million hours worked. The number of hours worked is based on 1,667 working hours annually per full-time employee and monthly records of the number of employees converted into full-time employees. For suppliers, the actual number of hours worked is recognised on the basis of data provided by the suppliers, access control systems at locations, or estimates. Fatalities are the number of employees who lost their lives as a result of a work-related incident. Governance Board of Directors of Ørsted A/S The employee representatives on the Board of Directors are not included in the data for the Board of Directors. Group Executive Team The Group Executive Team consists of the Executive Board (our CEO, CFO, and Chief HR Officer) and eight additional members, who undertake the day-to-day management of Ørsted. 161 Ørsted annual report 2022 Financial statements Parent company financial statements Income statement 163 163 Balance sheet 164 Statement of changes in equity 165 Notes 1 Basis of reporting 2 Employee costs 3 Financial income and expenses 4 Tax on profit (loss) for the year and deferred tax 5 Distribution of net profit 6 Property, plant, and equipment 7 Investments in subsidiaries 8 Receivables from subsidiaries 9 Derivatives 10 Securities 11 Loans and borrowings 12 Other provisions 13 Related-party transactions 14 Contingent liabilities 15 Auditor’s fees 16 Ownership information 162 Global container logistics giant Maersk will soon add 12 new ships to its global fleet to be fuelled by e-methanol produced by Ørsted using renewable power from onshore wind and solar PV farms. This will be the largest ever offtake agreement for green fuels in the maritime industry, with around 300,000 tonnes of e-methanol to be delivered each year from a new power-to-X facility we’ll build on the US Gulf Coast. Ørsted annual report 2022 Financial statements Parent company financial statements | Income statement / Balance sheet Income statement 1 January – 31 December Balance sheet 1 January – 31 December Assets DKKm Note 6 7 8 4 Land and buildings Property, plant, and equipment 2022 712 712 2021 791 791 Investments in subsidiaries 51,276 36,150 Receivables from subsidiaries 163,616 107,894 Deferred tax Other receivables Financial assets 33 14 160 15 214,939 144,219 Non-current assets 215,651 145,010 Receivables from subsidiaries 28,542 22,097 9 Derivatives Other receivables Income tax Receivables 10 Securities Cash Current assets Assets 6,661 2,702 56 37,961 24,428 8,840 71,229 7,328 4,289 - 33,714 20,417 3,169 57,300 Equity and liabilities DKKm Note Share capital Reserves Retained earnings Proposed dividends Equity attributable to share- holders in Ørsted A/S 11 Hybrid capital 12 11 11 Equity Other provisions Lease liabilities Bond and bank debt Payables to subsidiaries Non-current liabilities 12 Other provisions Lease liabilities Bond and bank debt 9 Derivatives 286,880 202,310 Trade payables 2022 4,204 2,130 46,530 5,675 58,539 19,793 78,332 1,949 659 54,033 - 56,641 22 107 1,547 5,564 64 2021 4,204 573 49,411 5,255 59,443 17,984 77,427 1,819 714 25,128 310 27,971 99 121 19,081 7,523 44 Payables to subsidiaries 142,297 68,769 Other payables Income tax Current liabilities Liabilities 2,306 - 813 462 151,907 96,912 208,548 124,883 Equity and liabilities 286,880 202,310 Income statement DKKm Note Revenue 2 Employee costs External expenses Operating profit (loss) before depreciation, amortisation, and impaiment losses (EBITDA) Amortisation, depreciation, and impairment losses on property, plant, and equipment Operating profit (loss) (EBIT) Gain/losses on divestment of enterprises 3 3 4 5 Financial income Financial expenses Profit (loss) before tax Tax on profit (loss) for the year Profit (loss) for the year 2022 229 (82) (243) 2021 198 (62) (188) (96) (52) (112) (208) (111) (163) (224) 23,126 (19,673) 3,021 344 3,365 (1,186) 29,420 (10,967) 17,104 142 17,246 163 Ørsted annual report 2022 Financial statements Parent company financial statements | Statement of changes in equity Statement of changes in equity 1 January – 31 December Statement of changes in equity DKKm Equity at 1 January 2022 Profit (loss) for the year Dividends paid Proposed dividends Value adjustments of hedging instruments Value adjustments transferred to financial income and expenses Tax on changes in equity Coupon payments, hybrid capital Additions, hybrid capital Disposals, hybrid capital Share-based payments Changes in equity in 2022 Equity at 31 December 2022 Equity at 1 January 2021 Profit (loss) for the year Dividends paid Proposed dividends Value adjustments of hedging instruments Value adjustments transferred to financial income and expenses Tax on changes in equity Coupon payments, hybrid capital Additions, hybrid capital Disposals, hybrid capital Share-based payments Changes in equity in 2021 Equity at 31 December 2021 Share capital com position and dividends are disclosed in note 5.2 ‘Equity’ to the consolidated financial statements. Information on trea sury shares is available in the note. 164 Share capital Hedging reserve Retained earnings Proposed dividends Shareholders in Ørsted A/S 4,204 573 - - - - - - - - - - - 4,204 4,204 - - - - - - - - - - - 4,204 - - - 2,578 (583) (438) - - - - 1,557 2,130 43 - - - 643 33 (146) - - - - 530 573 49,411 2,788 2 (5,675) 5,255 - (5,255) 5,675 - - - - - - 4 (2,881) 46,530 38,152 16,506 4 (5,255) - - - - - - 4 - - - - - - - 420 5,675 4,834 - (4,834) 5,255 - - - - - - - 59,443 2,788 (5,253) - 2,578 (583) (438) - - - 4 (904) 58,539 47,233 16,506 (4,830) - 643 33 (146) - - - 4 11,259 49,411 421 5,255 12,210 59,443 Hybrid capital 17,984 577 - - - - 13 (529) 3,693 (1,945) - 1,809 19,793 13,232 740 - - - - 86 (430) 7,327 (2,971) - 4,752 17,984 Total 77,427 3,365 (5,253) - 2,578 (583) (425) (529) 3,693 (1,945) 4 905 78,332 60,465 17,246 (4,830) - 643 33 (60) (430) 7,327 (2,971) 4 16,962 77,427 Ørsted annual report 2022 Financial statements Parent company financial statements | Notes | 1. Basis of reporting 1. Basis of reporting Accounting policies The parent company financial statements have been prepared in accordance with the provisions of the Danish Financial State- ments Act (‘Årsregnskabsloven’) (reporting class D). The Danish Financial Statements Act allows us to use certain IFRS standards to inter- pret the act. Therefore, we have previously implemented IFRS 15 ‘Revenue’ and IFRS 16 ‘Leases’. The accounting policies remain unchanged from the previous year. Unless otherwise stated, the financial statements are presented in Danish kroner (DKK) rounded to the nearest million. The parent company accounting policies are consistent with the accounting policies described for the consolidated financial statements, with the following exceptions. Foreign currency translation We recognise exchange rate adjustments of receivables from and payables to sub- sidiaries as financial income and expenses in the income statement when the balances are accounted for as part of the total net investment in foreign enterprises. Likewise, we recognise foreign exchange gains and losses on loans and derivatives in the income statement as financial income and expenses 165 when they have been entered into to hedge the net investment in the foreign enterprises. Revenue Rental income comprises income from commercial leases and is recognised over the term of the lease. Income from services is recognised when delivery has taken place. Dividends from investments Dividends from subsidiaries and associates are recognised in the income statement for the financial year in which the dividends are approved at the annual general meeting. If the dividends exceed the total income after takeover, the dividends are recognised as a reduction of the cost of the investment under assets. Investments We measure our investments in subsidiaries and associates at cost. If there is any indication that the value of a company is lower than our future earnings in the com- pany, impairment testing of the company is carried out as described in the consolidated financial statements. The carrying amount is written down to the recoverable amount whenever the carrying amount exceeds the future earnings in the company (recoverable amount). If we have a legal or constructive obliga- tion to cover a deficit in subsidiaries and associates, we recognise a provision for this. Tax Ørsted A/S is taxed jointly with its Danish subsidiaries. The jointly taxed companies are part of joint taxation with the parent compa- ny as the management company. Subsidiaries are included in the joint taxa- tion from the date they are consolidated in the consolidated financial statements and up to the date on which they are no longer consolidated. Current tax for 2022 is recognised by the individual, jointly taxed companies. Statement of cash flows We do not prepare a separate statement of cash flows for the parent company. Refer- ence is made to the consolidated statement of cash flows on pages 75-76. Key accounting estimate In connection with the preparation of the financial statements, a number of accounting estimates have been made that affect the profit (loss) and balance sheet. Estimates are regularly reassessed by the leadership team on the basis of historical experience and other relevant factors. Impairment test If there is any indication that the carrying amount is lower than our future earnings in a company, we test for impairment as described in the consolidated financial statements. The future earnings of the company (recoverable amount) are calculated based on assumptions con- cerning significant estimates. Ørsted annual report 2022 Financial statements Parent company financial statements | Notes | 2. Employee costs / 3. Financial income and expenses 2. Employee costs 3. Financial income and expenses 2022 2021 70 4 1 7 82 50 4 2 6 62 Financial income and expenses DKKm Interest income from cash, etc. Interest income from subsidiaries Interest income from securities at market value Reversal impairment of investments in subsidiaries Foreign exchange gains Value adjustments of derivatives Dividends received Total financial income 30,632 31,250 Interest expenses relating to loans and borrowings 6,454 3,989 860 14,553 9,270 65,758 6,996 2,497 709 - - 41,452 Interest expenses, leases Interest expenses to subsidiaries Impairment of investments in subsidiaries Capital losses on securities at market value Foreign exchange losses Value adjustments of derivatives Other financial expenses Total financial expenses Net financial income and expenses 2022 104 4,006 150 165 3,531 11,109 4,061 23,126 (1,824) (20) (765) (39) (1,574) (5,664) (9,592) (195) 2021 116 2,016 174 4,536 4,604 5,872 12,102 29,420 (1,542) (23) (12) (194) (500) (1,585) (7,037) (74) (19,673) (10,967) 3,453 18,453 The parent company had an average of eight employees in 2022 (2021: six employees). Remuneration of the Board of Directors totals DKK 7 million (2021: DKK 6 million). Employee costs DKKm Wages and salaries Share-based payment Pensions and social costs Remuneration Total employee costs Salaries and remuneration of the Executive Board DKK ’000 Fixed salary Cash-based incentive scheme Share-based payment Pension, incl. social security and benefits Salary in notice period Severance payment Total Notes 2.7 ‘Employee costs’ and 2.8 ‘Share- based payment’ to the consoli dated financial statements describe the remuner- ation of the Executive Board and the Board of Directors as well as the share-based payment, termination, and bonus scheme for the Executive Board and details on the remuneration of the Board of Directors. 166 Ørsted annual report 2022 Financial statements Parent company financial statements | Notes | 4. Tax on profit (loss) for the year and deferred tax / 5. Distribution of net profit 4. Tax on profit (loss) for the year and deferred tax 5. Distribution of net profit Distribution of net profit DKKm Profit (loss) for the year is attributable to: Shareholders in Ørsted A/S, proposed dividends for the financial year Shareholders in Ørsted A/S, retained earnings Interest payments and costs, hybrid capital owners of Ørsted A/S Profit (loss) for the year 2022 2021 5,675 (2,887) 577 3,365 5,255 11,251 740 17,246 Income tax DKKm Tax on profit (loss) for the year Tax on changes in equity Total tax for the year Tax on profit (loss) for the year can be broken down as follows: Current tax Adjustments to deferred tax Adjustments to current tax in respect of prior years Adjustments to deferred tax in respect of prior years Tax on profit (loss) for the year Development in deferred tax DKKm Deferred tax at 1 January Adjustments for the year recognised in profit (loss) for the year Adjustments to deferred tax in respect of prior years Deferred tax at 31 December Specification of deferred tax DKKm Non-current liabilities Deferred tax, asset Deferred tax, liability 2022 344 (425) (81) 470 (170) 1 43 344 (160) 170 (43) (33) (33) 33 - 2021 142 (60) 82 (114) 280 (23) (1) 142 119 (280) 1 (160) (160) 160 - 167 Ørsted annual report 2022 Financial statements Parent company financial statements | Notes | 6. Property, plant, and equipment / 7. Investments in subsidiaries 6. Property, plant, and equipment 7. Investments in subsidiaries Property, plant, and equipment: Land and buildings DKKm Cost at 1 January Additions Disposals Cost at 31 December Depreciation and amortisation at 1 January Depreciation and amortisation Disposals Depreciation and amortisation at 31 December Carrying amount at 31 December Value of leased assets 2022 1,120 33 - 1,153 (329) (112) - (441) 712 712 2021 1,113 7 - 1,120 (219) (110) - (329) 791 791 Investments in subsidiaries DKKm Cost at 1 January Additions Disposals Cost at 31 December Value adjustments at 1 January Impairment losses/reversals Value adjustments at 31 December Carrying amount at 31 December Note 7.4 Company overview of the consolidated financial statements contains a overview of subsidiaries, etc. 2022 36,809 15,000 - 51,809 (659) 126 (533) 51,276 2021 32,279 4,530 - 36,809 (3,501) 2,842 (659) 36,150 We have entered into leases for office premises, primarily in Gentofte, Denmark (expiring in 2028). In 2022, an amount of DKK 95 million was recognised (2021: DKK 83 million) in profit (loss) for the year in respect of rental income. We have entered into operating leases with subsidiaries for sublease of office premises. We have tested investments in subsidiaries for impairment by comparing the expected future income from the individual subsidiar- ies with their carrying amounts. The impairment test in 2022 gave rise to a reversal of impairment on the investment in Ørsted Bioenergy & Thermal Power A/S of DKK 124 million and on the investment in Ørsted Onshore Holding A/S of DKK 41 million. An impairment of DKK 39 million is recog- nised on the investment in Orsted Infrastruc- ture GmBh, resulting in a net reversal of impairment of DKK 126 million based on the individual subsidiaries recoverable amounts. In 2022, the addition relates to capital injec- tions in Ørsted Salg & Service A/S. 168 Ørsted annual report 2022 Financial statements Parent company financial statements | Notes | 8. Receivables from subsidiaries / 9. Derivatives 8. Receivables from subsidiaries 9. Derivatives Non-current receivables from subsidiaries DKKm Cost at 1 January Additions Disposals Cost at 31 December 169 2022 2021 107,894 84,638 (28,916) 163,616 80,893 69,141 (42,140) 107,894 2022 2021 Overview of derivative positions DKKm Interest derivatives Currency derivatives Total Assets Equity and liabilities Contractual principal amount Market value Contractual principal amount Market value 22,185 47,318 69,503 1,578 (481) 1,097 6,661 (5,564) 21,223 58,384 79,607 752 (947) (195) 7,328 (7,523) See note 6.1 ‘Market risk policy’ to the consolidated financial statements and the management’s review on pages 38-41 for more details on risk and risk management. Derivatives at the end of December 2022 mature as follows: 2023: DKK -651 million, 2024: DKK 89 million, after 2024: DKK 1,659 million (2021: 2022: DKK -279 million, 2023: DKK -587 million, after 2023: DKK 671 million). All derivatives are classified as based on observable inputs in the fair value hierarchy. Ørsted A/S has assumed the subsidiaries’ currency risks via forward exchange contracts, which have subsequently been hedged in the market. Furthermore, hedging contracts have been concluded to hedge the currency risk associated with invest- ments in subsidiaries in foreign currencies. We have also entered into a number of interest rate swaps to manage our interest rate risk. The company has fair value hedged loans and receivables in GBP and USD. The value of the fair value hedge offset in the income statement amounted to DKK -879 million (2021: DKK 127 million). Ørsted annual report 2022 Financial statements Parent company financial statements | Notes | 10. Securities / 11. Loans and borrowings / 12. Other provisions / 13. Related-party transactions 10. Securities 12. Other provisions Securities DKKm Securities, available for use Total securities 2022 2021 24,428 24,428 20,417 20,417 Securities are a key element in our financial resources, and therefore investments are primarily made in liquid AAA-rated Danish mortgage bonds and, to a lesser extent, in other bonds. Most of the securities qualify for repo transactions in the Danish central bank, ‘Danmarks Nationalbank’. All securities are classified as based on observable inputs in the fair value hierarchy. We have made provisions for non-current liabilities totalling DKK 1,971 million (2021: DKK 1,918 million), of which DKK 22 million fall due within 1 year, and DKK 1,949 million fall due in 1-5 years. The provisions mainly concern the divest- ment of our oil and gas business in 2017 and the sale of our Danish power distribution, residential customer, and city light businesses to SEAS-NVE (now Andel) in 2020. 11. Loans and borrowings 13. Related-party transactions The long-term portion of bank loans and issued bonds amounted to DKK 54,033 mil- lion at 31 December 2022 (2021: DKK 25,128 million), of which DKK 50,930 million (2021: DKK 24,781 million) fall due in more than five years. Related parties are the Board of Directors, the Executive Board, Ørsted A/S’s subsidiaries, and the Danish state. Our related-party transactions are made on arm’s length terms. Remuneration of the Board of Directors and the Executive Board is disclosed in notes 2.7 ‘Employee costs’ and 2.8 ‘Share-based payment’ in the consolidated financial statements. On 31 December 2022, we had issued hybrid capital with a total notional amount of DKK 19,877 million (2021: DKK 18,269 million). The hybrid bonds have a 1,000-year term and expire as follows: DKK 681 million in 3013, DKK 3,668 million in 3017, DKK 4,416 million in 3019, DKK 7,336 million in 3021, and DKK 3,692 million in 3022, respectively. The long-term portion of lease debt amounted to DKK 659 million at 31 Decem- ber 2022 (2021: DKK 714 million), of which DKK 208 million (2021: DKK 322 million) fall due in more than five years. 170 Ørsted annual report 2022 Financial statements Parent company financial statements | Notes | 14. Contingent liabilities / 15. Auditor’s fees / 16. Ownership information 14. Contingent liabilities 15. Auditor’s fees Guarantees Ørsted A/S has provided guarantees in connection with participation by subsidiaries and subsidiaries’ joint operations and joint ventures in the construction and operation of offshore wind farms and natural gas in- stallations as well as guarantees in respect of leases, energy trading activities, purchase, sale, and supply agreements, decommission- ing obligations, farm-downs and other M&A transactions as well as secondary liability on decommissioning of offshore installations related to the divestment of the oil and gas business, etc. Ørsted A/S acts as guarantor or surety provider with primary liability for bank liabilities in certain subsidiaries, including guarantees in favour of banks and investors covering credit facilities established and bonds issued in Taiwan. Furthermore, in support of the ratings of Ørsted Salg & Service A/S by Moody’s and Ørsted Wind Power TW Holding A/S by Taiwan Ratings, Ørsted A/S has provided general guarantees covering all obligations and liabilities undertaken in the ordinary course of business by these two entities. 171 Indemnities Ørsted A/S is taxed jointly with the Danish companies in the Ørsted Group. As manage- ment company, Ørsted A/S has unlimited as well as joint and several liability together with the other jointly taxed companies for Danish income taxes and withholding taxes on dividends, interest, and royalties related to the jointly taxed companies. Litigation Ørsted is involved in ongoing transfer pricing disputes. For further information, we refer to section 4.1 ‘Approach to taxes’ to the con- solidated financial statements. Ørsted A/S is not a party to any litigation proceedings or legal disputes that could have an effect on the company’s financial position, either individually or collectively. Auditor’s fees DKKm Statutory audit Other assurance engangements Total fees to PwC In 2022 work in respect of issuances of bonds was performed, this is captured under other assurance engagements. 2022 2021 4 3 7 3 - 3 16. Ownership information Ownership information 31 December 2022 The Danish state represented by the Danish Ministry of Finance Andel A.M.B.A. The Capital Group Companies, Inc. Registered office Ownership interests Voting share Copenhagen K, Denmark Svinninge, Denmark Los Angeles, the US 50.12 % 5.01 % - 50.74 % 5.07 % 5-10 % 1 The table shows the shareholders with ownership interests and voting shares of at least 5 %. The difference between ownership interests and voting shares arises when power of attorney is issued. 1 Interval shown, as precise voting share is not publicly available. Ørsted annual report 2022 Financial statements Management’s statement, auditor’s reports, and glossary 173 Statement by the Executive Board and the Board of Directors 174 Independent Auditor’s Reports 179 Independent limited assurance report on the consolidated ESG statements 181 Glossary 172 In an ambitious new project, we have partnered with the Lincolnshire and Yorkshire Wildlife Trusts to restore biodiversity around the Humber, a large tidal estuary on the east coast of Northern England. The pioneering initiative will seek to restore seagrass and salt marsh and introduce half a million native oysters to improve the health and resilience of the estuary’s ecosystem. Ørsted annual report 2022 Financial statements Management’s statement, auditor’s reports, and glossary | Statement by the Executive Board and the Board of Directors Statement by the Executive Board and the Board of Directors the parent company as well as a description of the most significant risks and elements of uncertainty facing the Group and the parent company. The management’s review has been prepared in accordance with the Danish Financial Statements Act. In our opinion, the annual report for the financial year 1 January – 31 December 2022 with the file name: Orsted-2022-12-31-en.zip is prepared, in all material respects, in compli- ance with the ESEF Regulation. In our opinion, the consolidated ESG state- ments (‘Additional information’) represent a reasonable, fair, and balanced representa- tion of the Group’s social responsibility and sustainability performance and are prepared in accordance with the stated accounting policies. We recommend that the annual report be adopted at the annual general meeting. The Board of Directors and the Executive Board have today considered and adopted the annual report of Ørsted A/S for the financial year 1 January – 31 December 2022. The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by the EU and further require- ments in the Danish Financial Statements Act. The financial statements of the parent company, Ørsted A/S, have been prepared in accordance with the Danish Financial Statements Act. In our opinion, the consolidated financial statements and the parent company finan- cial statements provide a true and fair view of the Group’s and the parent company’s assets, liabilities, and financial position at 31 December 2022, and of the results of the Group’s and the parent company’s oper- ations, and the Group’s cash flows for the financial year 1 January – 31 December 2022. In our opinion, the management’s review provides a true and fair account of the development in the Group’s and the parent company’s operations and financial circum- stances, of the results for the year, and of the overall financial position of the Group and Skærbæk, 1 February 2023 Executive Board: Mads Nipper Group President and CEO Daniel Lerup CFO Henriette Fenger Ellekrog Chief HR Officer Board of Directors: Thomas Thune Andersen Chair Lene Skole Deputy Chair Lynda Armstrong Jørgen Kildahl Julia Elizabeth King Peter Korsholm Henrik Poulsen Dieter Wemmer Benny Gøbel* Leticia Francisca Torres Alice Florence Marion Anne Cathrine Collet Yde* Mandiola* Vallienne* 173 * Employee elected board member Ørsted annual report 2022 Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Statements for 2022. These matters were addressed in the context of our audit of the Financial Statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Financial statements Management’s statement, auditor’s reports, and glossary | Independent auditor’s reports Independent Auditor’s Reports To the shareholders of Ørsted A/S Report on the audit of the Financial Statements Our opinion In our opinion, the Consolidated Financial Statements give a true and fair view of the Group’s financial position at 31 December 2022 and of the results of the Group’s oper- ations and cash flows for the financial year 1 January to 31 December 2022 in accord- ance with International Financial Reporting Standards as adopted by the EU and fur- ther requirements in the Danish Financial Statements Act. Moreover, in our opinion, the Parent Company Financial Statements give a true and fair view of the Parent Company’s financial posi- tion at 31 December 2022 and of the results of the Parent Company’s operations for the financial year 1 January to 31 December 2022 in accordance with the Danish Financial Statements Act. Our opinion is consistent with our Auditor’s Long-form Report to the Audit & Risk Committee and the Board of Directors. What we have audited The Consolidated Financial Statements of Ørsted A/S for the financial year 1 January to 31 December 2022, pp. 69-154 and 172- 173, comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement, and the notes to the consolidated financial statements, including summary of significant accounting policies. The Parent Company Financial Statements of Ørsted A/S for the financial year 1 January to 31 December 2022, pp. 162-173, comprise the income statement, the balance sheet, the statement of changes in equity, and the notes, including summary of significant accounting policies. Collectively referred to as the ‘Financial Statements’. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and the additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the Auditor’s responsibilities for the audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accord- ance with the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (IESBA Code) and the additional ethical require- ments applicable in Denmark. We have also fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. To the best of our knowledge and belief, prohibited non-audit services referred to in Article 5(1) of Regulation (EU) No 537/2014 were not provided. Appointment We were first appointed auditors of Ørsted A/S on 19 April 2010 for the finan- cial year 2010 and have been reappointed annually by shareholder resolution for a total uninterrupted period of engagement of 13 years, including the financial year 2022. At the annual general meeting on 2 March 2020, we were reappointed following a tendering procedure. 174 Ørsted annual report 2022 Financial statements Management’s statement, auditor’s reports, and glossary | Independent auditor’s reports Key audit matter How our audit addressed the key audit matter Key audit matter How our audit addressed the key audit matter Partnership agreements Divestment of ownership interests in offshore wind farms (farm-downs) to a partner in a joint operation, including calculating the divestment gains and subsequent recognition of construction agreements and assessment of consolidation method for the re- tained interests, are considered complex non-routine transactions. As part of farm-downs, compensation mechanisms are often agreed with the partners, e.g. regarding sales price, cost of subsequent use of offshore transmission assets constructed for the wind farm, potential wake and blockage effect compensations, and warranties. We focused on this area because farm-downs and the related matters are considered complex non-routine transactions, and because the recog- nition and measurement of the divestment gains, assessment of consolidation method, subsequent construction agreements with the partners, com- pensation mechanisms, and warranties are based on significant judgements and estimates. Refer to notes 1.2 and 2.6 in the consolidated financial statements. As part of our audit, we read share purchase agreements for farm-downs and final settlement agreements. We challenged the accounting treatment applied by Management, including the gain statements and the consolidation method for the retained interest in offshore wind farms. We obtained an understanding of the compensa- tion mechanisms and warranties agreed in divest- ments and of the final settlements. We challenged the significant estimates prepared by Management for measurement of compensa- tion mechanisms and warranties, hereunder by assessing and testing the main data, significant assumptions and models applied, and by evaluat- ing the outcome of previous estimates prepared by Management. Valuation of derivative financial instruments and documentation of hedge accounting Ørsted applies hedge accounting for derivative financial instruments used for hedging of: – energy prices, currency and inflation risks associated with revenue (energy hedges) – commodity price and currency risks associated with the construction of wind farms – interest rate risks associated with loans and divestments. We focused on this area because the valuation of the derivative financial instruments (hedging instru- ments) and assessment of hedge relationship and hedge effectiveness, including use of proxy hedges, are complex. Due to the significant increase and volatility in energy prices and the financial markets during 2022, the fair value of the hedging instruments have fluctuated significantly. On this basis, valuation of the hedging instruments and hedge accounting were a matter of most signif- icance in our audit. Refer to notes 1.2 and 6.1-6.4 in the consolidated financial statements. As part of our audit, we tested the valuation of the hedging instruments and the documentation of hedge effectiveness of energy, commodity, interest rates, and related foreign exchange risk hedges. In this connection, we assessed and obtained an understanding of the exposures subject to hedging, the hedging instruments applied, the hedge rela- tionships, including the methods, data, and assump- tions applied for documentation of the fair value of hedging instruments, and hedge effectiveness. We challenged the accounting treatment applied by Management, including for the hedging instru- ments used and the hedge reserve recognised in the consolidated statement of comprehensive income. We challenged the significant data, assumptions, and models applied by Management when as- sessing the value of the hedging instruments and the hedge relationship and hedge effectiveness, hereunder by assessing and testing the main data, significant assumptions, and models applied. In our audit of the valuation of the hedging instru- ments and hedge accounting, we involved our financial instrument specialists. 175 Ørsted annual report 2022 Financial statements Management’s statement, auditor’s reports, and glossary | Independent auditor’s reports Key audit matter How our audit addressed the key audit matter Income taxes Ørsted is subject to income taxes in the countries where they operate. Significant judgements and estimates are required in determining the income taxes and in the measurement of income tax assets and liabilities, including uncertain tax positions. We focused on this area because Management makes significant judgments and estimates when calculating and assessing the income taxes due to the complex nature of the tax rules related to the business activities conducted in different tax jurisdic- tions. Furthermore, Management makes estimates when measuring the tax assets, including when and to which extent these can be utilised in the future, and when measuring tax liabilities, including assess- ing deferred taxes in tax equity partnerships. Additionally, Ørsted is a party in tax and transfer pricing disputes where Management assesses the possible outcomes and consequently recognises provisions to cover for these uncertain tax positions. In 2020 and 2021, Ørsted received administrative decisions from the Danish Tax Agency entailing additional tax payables and related interests, which Management disputes and has appealed to the relevant authorities. On this basis, income taxes were a matter of most significance in our audit. Refer to notes 1.2, 4,2, and 4.3 in the consolidated financial statements. For income taxes, income tax assets, and liabilities, we evaluated the assumptions applied by Manage- ment in determining the recognition and measure- ment of income taxes and deferred taxes, including those related to tax equity partnerships, while taking into account relevant correspondence with tax authorities and external advisors. We assessed Management’s judgements and estimates of tax balances and carrying amounts as well as the related applied tax rates when calculat- ing these. We also assessed the reasonableness of the main data and assumptions used to calculate the taxable income forecasts underlying the recog- nition and recoverability of the deferred tax assets relating to tax loss carryforwards. We evaluated and tested Ørsted’s processes for recording, assessing, and continually reassessing provisions for uncertain tax positions. In our audit of uncertain tax positions, we obtained and reviewed the correspondence with relevant tax authorities in order to consider the completeness of the tax disputes and the related provisions. We assessed the measurement of the provisions and challenged the assumptions used, including the pos- sibility of obtaining corresponding tax adjustments, compensations from partners, and the likelihood of different outcomes. In addition, we assessed relevant opinions obtained by Management from third parties related to the tax disputes, and we evaluated the disclosures provided by Management in the consolidated financial statements. In our audit of income taxes, we involved our tax specialists. 176 Ørsted annual report 2022 Financial statements Management’s statement, auditor’s reports, and glossary | Independent auditor’s reports Statement on Management’s Review Management is responsible for Manage- ment’s Review, pp. 4-68. Our opinion on the Financial Statements does not cover Management’s Review, and we do not express any form of assurance conclusion thereon. In connection with our audit of the Financial Statements, our responsibility is to read Man- agement’s Review and, in doing so, consider whether Management’s Review is materially inconsistent with the Financial Statements or our knowledge obtained in the audit, or oth- erwise appears to be materially misstated. Moreover, we considered whether Manage- ment’s Review includes the disclosures required by the Danish Financial Statements Act. Based on the work we have performed, in our view, Management’s Review is in accordance with the Consolidated Financial Statements and the Parent Company Financial State- ments and has been prepared in accordance with the requirements of the Danish Finan- cial Statements Act. We did not identify any material misstatement in Management’s Review. Management’s responsibilities for the Financial Statements Management is responsible for the prepa- ration of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and further requirements in the Danish Financial State- ments Act and for the preparation of parent 177 company financial statements that give a true and fair view in accordance with the Danish Financial Statements Act, and for such internal control as Management deter- mines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the Financial Statements, Management is responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless Management either intends to liquidate the Group or the Parent Company or to cease operations, or has no realistic alternative but to do so. As part of an audit in accordance with ISAs and the additional requirements applicable in Denmark, we exercise professional judge- ment and maintain professional scepticism throughout the audit. We also: – identify and assess the risks of material misstatement of the Financial State- ments, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appro- priate to provide a basis for our opinion. The risk of not detecting a material mis- statement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intention- al omissions, misrepresentations, or the override of internal control Auditor’s responsibilities for the audit of the – Financial Statements Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from mate- rial misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assur- ance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial Statements. obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appro- priate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Parent Company’s internal control – – evaluate the appropriateness of account- ing policies used and the reasonableness of accounting estimates and related disclosures made by management evaluate the appropriateness of account- ing policies used and the reasonableness of accounting estimates and related disclosures made by Management – conclude on the appropriateness of Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a mate- rial uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Parent Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related dis- closures in the Financial Statements or, if such disclosures are inadequate, to modi- fy our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group or the Parent Company to cease to continue as a going concern evaluate the overall presentation, structure, and content of the Financial Statements, including the disclosures, and whether the Financial Statements represent the underlying transactions and events in a manner that gives a true and fair view obtain sufficient appropriate audit evidence regarding the financial informa- tion of the entities or business activities within the Group to express an opinion on the Consolidated Financial Statements. We are responsible for the direction, su- pervision, and performance of the group audit. We remain solely responsible for our audit opinion. – – We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any Ørsted annual report 2022 Financial statements Management’s statement, auditor’s reports, and glossary | Independent auditor’s reports significant deficiencies in internal control that we identify during our audit. We also provide those charged with govern- ance with a statement that we have com- plied with relevant ethical requirements regarding independence and to communi- cate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where appli- cable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regula- tion precludes public disclosure about the matter. Report on compliance with the ESEF Regulation As part of our audit of the Financial State- ments, we performed procedures to express an opinion on whether the annual report of Ørsted A/S for the financial year 1 January to 31 December 2022 with the filename Orsted-2022-12-31-en.zip is prepared, in all material respects, in compliance with the Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Regulation), which includes requirements related to the preparation of the annual report in XHTML format and iXBRL tagging of the Consolidated Financial Statements, including notes. Management is responsible for preparing an annual report that complies with the ESEF Regulation. This responsibility includes: – the preparation of the annual report in XHTML format – – – the selection and application of appro- priate iXBRL tags, including extensions to the ESEF taxonomy and the anchoring thereof to elements in the taxonomy, for all financial information required to be tagged using judgement where necessary ensuring consistency between iXBRL tagged data and the Consolidated Financial Statements presented in human- readable format for such internal control as Management determines necessary to enable the preparation of an annual report that is compliant with the ESEF Regulation. Our responsibility is to obtain reasonable assurance on whether the annual report is prepared, in all material respects, in compli- ance with the ESEF Regulation based on the evidence we have obtained and to issue a report that includes our opinion. The nature, timing, and extent of procedures selected depend on the auditor’s judgement, includ- ing the assessment of the risks of material departures from the requirements set out in 178 the ESEF Regulation, whether due to fraud or error. The procedures include: Hellerup, 1 February 2023 – testing whether the annual report is prepared in XHTML format PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab CVR No 3377 1231 Rasmus Friis Jørgensen State Authorised Public Accountant mne28705 Anders Stig Lauritsen State Authorised Public Accountant mne32800 – – – – – obtaining an understanding of the company’s iXBRL tagging process and of internal control over the tagging process evaluating the completeness of the iXBRL tagging of the Consolidated Financial Statements, including notes evaluating the appropriateness of the company’s use of iXBRL elements selected from the ESEF taxonomy and the creation of extension elements where no suitable element in the ESEF taxonomy has been identified evaluating the use of anchoring of extension elements to elements in the ESEF taxonomy reconciling the iXBRL tagged data with the audited Consolidated Financial Statements. In our opinion, the annual report of Ørsted A/S for the financial year 1 January to 31 December 2022 with the file name Orsted-2022-12-31-en.zip is prepared, in all material respects, in compliance with the ESEF Regulation. Ørsted annual report 2022 Financial statements Management’s statement, auditor’s reports, and glossary | Independent limited assurance report on the consolidated ESG statements Independent limited assurance report on the consolidated ESG statements To the stakeholders of Ørsted A/S Ørsted A/S engaged us to provide limited assurance on the consolidated ESG state- ments stated on pages 155-161 in the 2022 annual report of Ørsted A/S for the period 1 January – 31 December 2022. Our conclusion Based on the procedures we performed and the evidence we obtained, nothing came to our attention that causes us not to believe that the consolidated ESG statements in the 2022 annual report of Ørsted A/S are prepared, in all material respects, in accord- ance with the applied accounting policies developed by Ørsted A/S as stated on pages 156-161. This conclusion is to be read in the context of what we state in the remainder of our report. What we are assuring The scope of our work was limited to assurance over data in the consolidated ESG statements in the 2022 annual report. Regarding reporting on Art. 8 of the Taxonomy Regulation, we are assuring that data have been stated in accordance with the applied accounting policies, not compliance with the EU regulation, since reporting requirements are still open to interpretations. We express limited assurance in our conclusion. Professional standards applied and level of assurance We performed a limited assurance engage- ment in accordance with International Standard on Assurance Engagements 3000 (Revised) ‘Assurance Engagements other than Audits and Reviews of Historical Financial Information’ and, in respect of the greenhouse gas emissions, in accordance with International Standard on Assurance Engagements 3410 ‘Assurance engagements on greenhouse gas statements’. The quanti- fication of greenhouse gas emissions is subject to inherent uncertainty because of incomplete scientific knowledge used to determine the emissions factors and the values needed to combine emissions of different gasses. A limited assurance engagement is sub- stantially less in scope than a reasonable assurance engagement in relation to both the risk assessment procedures, including an understanding of internal control, and the procedures performed in response to the assessed risks; consequently, the level of assurance obtained in a limited assurance engagement is substantially lower than the assurance that would have been obtained had a reasonable assurance engagement been performed. Our independence and quality control We have complied with the independence requirements and other ethical requirements in the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (IESBA Code), which is founded on fundamental principles of integrity, objectivity, professional com- petence and due care, confidentiality and professional behavior, and ethical require- ments applicable in Denmark. PricewaterhouseCoopers applies Interna- tional Standard on Quality Management 1, ISQM 1, which requires the firm to design, implement, and operate a system of quality management, including policies or proce- dures regarding compliance with ethical requirements, professional standards, and applicable legal and regulatory require- ments. Our work was carried out by an independent multidisciplinary team with experience in sustainability reporting and assurance. Understanding reporting and measurement methodologies The consolidated ESG statements need to be read and understood together with the accounting policies. The accounting policies used for the preparation of the consolidated ESG statements are the applied accounting policies developed by Ørsted A/S, which Management is solely responsible for select- ing and applying. The absence of a significant body of estab- lished practice on which to draw to evaluate and measure ESG data allows for different, but acceptable, measurement techniques and can affect comparability between entities and over time. Work performed We are required to plan and perform our work in order to consider the risk of mate- rial misstatement of the consolidated ESG statements. In doing so and based on our professional judgement, we: – made inquiries and conducted interviews with Group functions to assess consoli- dation processes, use of company-wide systems, and controls performed at Group level 179 Ørsted annual report 2022 Financial statements Management’s statement, auditor’s reports, and glossary | Independent limited assurance report on the consolidated ESG statements – measuring and reporting the information in the consolidated ESG statements based on the accounting policies – the content of the consolidated ESG statements. Hellerup, 1 February 2023 PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab CVR no. 3377 1231 Our responsibility We are responsible for: – planning and performing the engage- ment to obtain limited assurance about whether the consolidated ESG state- ments for the 1 January – 31 December 2022 are prepared, in all material respects, in accordance with the account- ing policies forming an independent conclusion, based on the procedures performed and the evidence obtained – reporting our conclusion to the stakeholders of Ørsted A/S. Rasmus Friis Jørgensen State Authorised Public Accountant mne28705 Anders Stig Lauritsen State Authorised Public Accountant mne32800 – checked ESG data on a sample basis to underlying documentation and evalu- ated the appropriateness of quantifica- tion methods and compliance with the accounting policies for preparing the consolidated ESG statements – conducted an analytical review of the data and trend explanations submitted by all business units for consolidation at Group level – considered the disclosure and presenta- tion of the consolidated ESG statements – evaluated the obtained evidence. Management’s responsibilities Management of Ørsted A/S is responsible for: – – designing, implementing, and maintaining internal control over information relevant to the preparation of the consolidated ESG statements that are free from mate- rial misstatement, whether due to fraud or error – establishing objective accounting policies for preparing the consolidated ESG statements 180 Ørsted annual report 2022 Financial statements Management’s statement, auditor’s reports, and glossary | Glossary Availability Glossary Availability is calculated as the ratio of actual produc- tion to the possible production, which is the sum of lost production and actual production in a given period. The production-based availability (PBA) is impacted by grid and wind turbine outages, which are technical production losses. PBA is not impacted by market requested shutdowns and wind farm curtailments, as this is deemed not to be reflective of site performance, but due to external factors. Avoided emissions The amount other sources of energy would have emitted if we had not generated energy from renew- able sources. Awarded capacity Offshore capacity that we have been awarded in auctions and tenders, but where we have yet to sign a PPA and take final investment decision. Blockage effect The blockage effect arises from the wind slowing down as it approaches the wind turbines. Decided (FID) and installed capacity Installed generation capacity plus capacity for assets where a final investment decision has been made. Degree days Number of degrees in absolute figures in difference between the average temperature and the official Danish indoor temperature of 17 °C. EPC Engineering, procurement, and construction. The part of our business which handles the construction and installation of assets. FID Final investment decision. When the Board of Directors approves major investments for construction assets. Generation capacity Ørsted’s ownership of the asset. Offshore wind turbines are included when each turbine has passed the 240-hour test. Onshore capacities are included after COD of the entire asset. BSUoS tariffs Costs related to the day-to-day operation of the trans- mission system imposed on generators and suppliers. Green certificates Certificate awarded to producers of environ- ment-friendly power as a supplement to the market price of power in the given price area. Carbon emission allowances Carbon emission allowances subject to the European Union Emissions Trading Scheme (EU ETS). CfD A contract for difference is a subsidy that guarantees the difference between the market reference price and the exercise price won. CHP A combined heat and power plant (CHP) generates both heat and power in the same process. Commissioning/COD When our assets are in oper ation, and the legal liability has been transferred from the supplier to us. Green dark spread (GDS) Represents the contribution margin per MWh of power generated at a coal-fired CHP plant with a given efficiency. It is determined as the difference between the market price of power and the cost of the coal (including associated freight costs) and carbon emis- sion allowances used to generate the power. Ineffective hedges When we hedge our exposure with an instrument that is not 100 % correlated with the exposure, we may see ineffectiveness in our hedging (i.e. results from such hedges should be recognised in the P&L immediately). Installed capacity Installed capacity where the asset has been completed and has passed a final test. Contracted capacity Onshore capacity where we have signed PPAs covering more than 50 % of the asset’s capacity, but where we have not yet taken final investment decision. Investment tax credits (ITCs) Federal tax credit based on qualifying renewable investment costs. 181 Load factor The ratio between the actual power generation in a given period relative to the potential generation which is possible by continuously exploiting the maximum capacity over the same period. TEC Transmission entry capacity (TEC) defines a generator’s maximum contractual level of transmission access in MW. Offshore transmission assets Connect offshore generation to the onshore grid and typically include the offshore power transmission infrastructure, an onshore substation, and the electrical equipment relating to the operation of the substation. O&M Operations and maintenance. The part of our business that operates and maintains our assets after installation. TNUoS tariffs Costs related to the use of the transmission networks in the UK based on TEC. TRIR In addition to lost-time injuries, the total recordable injury rate (TRIR) also includes injuries where the injured person is able to perform restricted work the day after the accident as well as accidents where the injured person has received medical treatment. Overhedging When our hedged volumes are higher than our actual generation, we are overhedged. This is normally caused by lower wind speeds and lead to financial losses if market prices are above our hedged prices. Wake effect Wake within wind farms and between neighbouring wind farms. There is a wake after each wind turbine where the wind slows down. As the wind flow continues, the wake spreads, and the wind speed recovers. Wind speed Shows the wind speed at Ørsted’s wind farms. The wind measurements are weighted on the basis of our generation capacity and can be compared to a normal wind period. P2X Renewable hydrogen and e-fuels, collectively referred to as Power-to-X (P2X). Partnership income Income originating from our partners’ purchase of ownership interests in the offshore wind farms. Includes both the gain in connection with the farm-down and the subsequent construction of the wind farm. Power purchase agreement (PPA) An agreement between us and a buyer/seller to purchase/sell the power we generate, which includes all commercial terms (price, delivery, volumes, etc.). Production tax credit (PTC) Federal tax credit based on eligible power generation in the US. ROCs Renewable obligation certificates issued by Ofgem in the UK to operators of accredited generating stations for the eligible renewable energy they generate. Operators can trade ROCs with other parties. Tax equity An arrangement where an investor obtains rights to federal tax credits and other tax attributes in exchange for a cash contribution. Ørsted annual report 2022 Ørsted A/S Kraftværksvej 53 DK-7000 Fredericia Tel.: +45 99 55 11 11 CVR no. 36213728 orsted.com Group Communication Martin Barlebo Tel.: +45 99 55 95 52 Investor Relations Rasmus Keglberg Hærvig Tel.: +45 99 55 90 95 Design and layout e-Types with Ørsted Global Design Images Cover, Patrick Harrison, Anholt Offshore Wind Farm, Denmark Patrick Harrison (page 4, 55, 155) Jan Oelker (page 12) Sally Anscombe (page 42) Martin Juul (page 65) Hamza Alghamdi (page 69) Christian E. Rørbeck (page 162) Finn Varney for Yorkshire Wildlife Trust (page 172) All other images by Ørsted Publication 1 February 2023