Orsted hit by up to $5.6 bln impairment on halted US projects
Renewable energy firm Orsted on Wednesday halted the development of two U.S. offshore wind projects and said related impairments had surged, as the industry grapples with supply chain delays and higher costs.
Renewable energy firm Orsted on Wednesday halted the development of two U.S. offshore wind projects and said related impairments had surged, as the industry grapples with supply chain delays and higher costs. Orsted, the world's largest offshore wind developer, said it would stop developing its 2,248-megawatt (MW) Ocean Wind 1 and 2 projects in New Jersey. Related impairments could amount to as much as 39.4 billion Danish crowns ($5.58 billion).
The stock plunged as much as 22% to a six year low of 265 crowns. The offshore wind industry has found itself in a perfect storm of rising inflation, interest rate hikes and supply chain delays.
This has cast doubt on plans by U.S. President Joe Biden and several states to use offshore wind to replace fossil fuels in energy production and reduce carbon emissions. On Tuesday, energy major BP booked a third-quarter writedown of $540 million on wind projects after officials in New York state rejected a request for better terms to reflect what BP called "inflationary pressures and permitting delays".
Norway's Equinor, BP's partner on those New York offshore wind developments, booked a $300 million impairment on the projects on Friday. Orsted flagged in August it could see U.S. impairments of 16 billion crowns due to supply chain issues, soaring borrowing costs and a lack of new tax credits.
On Wednesday, the Danish company raised that number to 28.4 billion crowns and said provisions relating to the cancellation of the two projects would amount to between 8 billion and 11 billion in the fourth quarter. The company said it had invested significantly at an early stage in Ocean Wind 1, the most advanced of the two projects.
"It is without a doubt proven that this was the wrong decision," Chief Executive Mads Nipper told journalists. "I want to be absolutely clear that we are taking away all learnings from this into future project development and timing for capital commitments," he said.
Wind developers have said the electricity price on offer at auctions has been too low for them to embark on new projects given the industry's problems with rising costs. "This perfect storm hinges on mostly one thing, namely to ensure that there is a reset of what offshore power needs to cost right now," Nipper said.
Orsted, which in June announced plans to invest 475 billion crowns by 2030, said it was in the process of reviewing its investments and could introduce cost-saving initiatives. The company's writedowns were in line with expectations, according to Bernstein analyst Deepa Venkateswaran.
Orsted's share price has tumbled 52% since an August profit warning, cutting its market value to 112 billion crowns from 235 billion. "You can say the market has punished them," said Venkateswaran. "I think there is a worry that things could get worse and spread to other parts of the portfolio, as well as a lack of confidence in the management team."
Still, she said, halting the development of Ocean Wind 1 sends "a positive signal that they are committed to only proceeding with valuable projects." ($1 = 7.0641 Danish crowns)
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