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Orsted’s Rotten Year Continues with $2.4bn Hit to US Wind Projects

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Orsted Faces $2.4 Billion Hit to US Offshore Wind Projects

London, August 30 – Danish renewable energy giant, Orsted, has announced a significant blow to its US offshore wind ventures. The company, valued at $27 billion, has revealed a staggering $2.4 billion impairment to its projects in the region, adding to the $365 million loss incurred earlier this year. The news has caused a plummet in Orsted’s market value, leading to concerns about the credibility of its management team.

The impairments to Orsted’s US schemes are multi-faceted. Delays from suppliers at the Ocean Wind 1, Sunrise Wind, and Revolution Wind projects on the Eastern seaboard have contributed to a loss of 5 billion Danish crowns ($730 million). Additionally, less generous subsidies than expected under the US Inflation Reduction Act have cost the company 6 billion crowns. The impact of higher interest rates on the overall value of Orsted’s projects has further compounded the issue, resulting in a total impairment of 16 billion crowns ($2.3 billion). This amount represents over half of the book value of Orsted’s US operations.

Orsted CEO, Mads Nipper, remains hopeful that some of the impairments can be reversed if interest rates and subsidy negotiations are in the company’s favor. He maintains his belief that Orsted’s projects can generate returns of up to 300 basis points over their costs of capital. However, investors seem unconvinced, as Orsted’s market value took a hit of $7 billion following the announcement.

One of the main concerns stemming from this situation is the credibility of Orsted’s management. The wind sector as a whole has faced challenges with cost increases and delays, as seen in wind turbine manufacturers like Vestas and Siemens Gamesa. Nipper had previously expressed confidence in the US subsidy landscape and downplayed the potential for surprises relating to inflation and supply chain issues. However, this recent revelation has triggered doubts among investors.

The credibility discount is particularly significant considering that more than 40% of Orsted’s revenue in 2022 originated from the UK. Just last month, Sweden’s Vattenfall withdrew from a major North Sea wind project due to soaring costs. This raises concerns that Orsted’s Hornsea Three wind farm, which shares similar levels of subsidised electricity prices as the Vattenfall project, may face a similar fate.

In 2021, investors had priced in cash flows from projects that Orsted hadn’t even secured yet, leading to a valuation per share and market capitalization surpassing 1,300 crowns and $80 billion, respectively. However, with the current share price at 435 crowns, it appears that investors may doubt Nipper’s ability to deliver on existing projects.

In a statement released on August 29, Orsted acknowledged that supplier delays could necessitate a write-down of the value of its Ocean Wind 1, Sunrise Wind, and Revolution Wind projects in the US, amounting to 5 billion Danish crowns ($730 million). The company also revealed that discussions with “senior federal stakeholders” regarding additional US tax credits for its offshore wind projects had not progressed as anticipated, which could result in impairments of another 6 billion Danish crowns. Furthermore, the increase in long-dated interest rates in the US has affected both offshore and some onshore wind projects, leading to impairments of around 5 billion crowns.

Following the news, Orsted’s share price experienced a sharp decline of 20%, reaching 444 Danish crowns by 1038 GMT on August 30.

More detail via Reuters here… ( Image via Reuters )

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