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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, in a big blow to American efforts to develop the renewable energy.
Shares in Ørsted fell 15 per cent on Wednesday after the group recorded DKr28.4bn ($4bn) of impairments, saying that it had “no choice” but to stop work on two projects off the New Jersey coast.
The offshore wind industry, which has been championed by governments as part of the answer to global warming, has been hit hard by supply chain disruptions, rising costs and higher interest rates.
The challenges have been particularly acute in the US, where the contracts that developers sign typically have less protection against inflation and the industry’s supply chain is still in its infancy.
The US offshore wind industry was “fundamentally broken”, Anja-Isabel Dotzenrath, BP’s head of low carbon energy, told a Financial Times conference on Wednesday, warning that a “fundamental reset” was needed to help the nascent market grow.
Ørsted’s writedown surpassed the DKr16bn that the company, which is majority-owned by the Danish state, had flagged in August. Since then, its US offshore wind projects had “experienced further negative developments”, the company said, citing changes to assumptions over tax credits and construction permits.
As a result, the company said it was now “taking measures to support its capital structure”, such as rationalising its portfolio.
Mads Nipper, chief executive of Ørsted, said the global offshore industry had been hurt by a “perfect storm”. The pressure, he said, “is the same everywhere but it is nowhere near as profound as it is in the US market”.
While Ørsted is ditching two projects, Ocean Wind 1 and 2, it is pushing ahead with a third, Revolution Wind, which it expects to be completed in 2025. Nipper said he was “extremely disappointed” in having to stop the projects, adding that the US “needs offshore wind to achieve its carbon emissions reduction ambition”.
Offshore developers have been eligible for significant subsidies under the US Inflation Reduction Act, which was passed in 2022 to accelerate the country’s transition to renewable energy. The Ocean Wind projects had promised to generate more than 2 gigawatts of offshore wind power in New Jersey.
Nipper, who has led Ørsted since early 2021, acknowledged that the writedowns would knock investors’ confidence but said: “We believe that the clarity for investors, despite the frustratingly high impairments, has become much greater with today’s announcement.”
Alexander Wheeler, an analyst at RBC Capital Markets, said pulling the two US projects “may actually provide better visibility on Ørsted going forward”.
But the group’s shares, which are listed in Copenhagen, were down 15 per cent in early afternoon trading, extending their drop this year to 54 per cent.
The impairment came a day after BP booked a $540mn writedown on two offshore wind projects off the New York coast after authorities turned down a request to renegotiate contracts.
In recent years, Ørsted has transformed itself from an oil and gas producer into a leading wind company.
The company has yet to decide whether to give final approval to a North Sea project, but Nipper said it was aiming to make a decision by the end of the year.
“It continues to hinge on acceptable value creation,” he added.
In a sign of the strains afflicting the industry, Swedish developer Vattenfall halted work on its Norfolk Boreas project in the UK North Sea in July, saying it was no longer viable at the electricity price it agreed with the government a year earlier.
Beyond the deepening challenges in the US, Nipper said the third quarter had been “really good,” with the company reporting an adjusted net profit of DKr5.9bn.
“The underlying operations and earnings ability of the company remains solid,” he said.