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The world’s largest offshore wind developer Ørsted has abandoned two important US projects and announced a higher than expected writedown of its portfolio, dealing a significant blow to American renewable energy efforts.
Shares in Ørsted fell 15 per cent on Wednesday after revealing DKr28.4bn ($4bn) in impairments and halting work on two projects off the New Jersey coast.
The offshore wind industry, touted as a solution to global warming, has been severely impacted by disruptions in the supply chain, rising costs, and higher interest rates.
These challenges have been particularly pronounced in the US, where contracts offer less protection against inflation and the supply chain is still developing.
At a Financial Times conference, Anja-Isabel Dotzenrath, BP’s Head of Low Carbon Energy, described the US offshore wind industry as “fundamentally broken” and emphasized the need for a “fundamental reset.”
Ørsted’s writedown exceeded the DKr16bn it had previously anticipated. The company cited changes to assumptions regarding tax credits and construction permits as reasons for the writedown.
As a result, Ørsted is taking steps to support its capital structure, including portfolio rationalization.
Mads Nipper, CEO of Ørsted, acknowledged the challenges facing the global offshore industry, stating that the pressure is especially profound in the US market.
While Ørsted is abandoning two projects, Ocean Wind 1 and 2, it is moving forward with Revolution Wind, which is expected to be completed in 2025. Nipper expressed disappointment in stopping the projects, emphasizing the importance of offshore wind in achieving carbon emissions reduction goals in the US.
US offshore developers have been eligible for substantial subsidies under the US Inflation Reduction Act. The Ocean Wind projects in New Jersey aimed to generate over 2 gigawatts of offshore wind power.
Alexander Wheeler, an analyst at RBC Capital Markets, believes that discontinuing the two US projects may provide better visibility for Ørsted’s future.
The group’s shares, however, have fallen 54 per cent this year and were down 15 per cent in early afternoon trading.
BP also recently booked a $540mn writedown on two offshore wind projects off the New York coast.
Over the years, Ørsted has transformed from an oil and gas producer into a leading wind company.
The company is yet to decide on final approval for a North Sea project, with a decision expected by year-end.
In July, Swedish developer Vattenfall halted work on its Norfolk Boreas project in the UK North Sea due to viability concerns regarding the agreed electricity price.
Despite the challenges, Nipper stated that the third quarter has been positive, with Ørsted reporting an adjusted net profit of DKr5.9bn.
