Orsted Books $4 Billion Impairments, Walks Away From Two US Offshore Projects — Update

By Dominic Chopping

Orsted booked a 28.4 billion Danish kroner ($4.02 billion) impairment charge in the third quarter related to its U.S. offshore wind portfolio and said it will stop development of two wind farm projects off the coast of New Jersey amid spiraling costs and supplier delays.

The news sent shares lower. At 0852 GMT shares traded down 21% at DKK268.

The Danish renewable-energy company had previously warned of up to DKK16 billion of impairments after flagging increasing supply-chain risks at U.S. projects, while a lack of favorable progress on U.S. tax credits and higher interest rates were also sending project costs higher.

Since then, the situation has worsened, with further supply-chain issues, higher interest rates, and the lack of a funding adjustment at its Sunrise Wind project off New York's coast leading to the higher-than-expected impairment, the company said.

At the Ocean Wind 1 and 2 projects offshore New Jersey, Orsted said additional supplier delays have further impacted project schedules, leading to a further significant delay, while updated assumptions on tax credit monetization, timing, likelihood of final construction permits and increases to long-dated U.S. interest rates have further deteriorated the business case.

The company has therefore decided to cease development of the Ocean Wind 1 and 2 projects and expects to book a provision of DKK8 billion to DKK11 billion in the fourth quarter to cover contract cancellation fees that aren't already covered by the impairments.

"The significant adverse developments from supply chain challenges, leading to delays in the project schedule, and rising interest rates have led us to this decision, and we will now assess the best way to preserve value while we cease development of the projects," said Orsted's Chief Executive Mads Nipper.

However, the company said it has taken the final investment decision on the Revolution Wind project offshore Rhode Island, meaning it will now proceed to construction phase. Orsted owns the project in a 50/50 partnership with Eversource and it is expected to be completed in 2025.

Orsted said it will now begin cost-cutting and other measures to shore up its capital structure and will assess its long-term strategic build-out ambitions and financial targets. It plans to provide an update on this work no later than its fourth quarter 2023 results announcement.

Orsted isn't alone in facing the increasing financial challenge of building new sprawling offshore projects.

Developers are struggling to justify moving ahead with large, capital intensive offshore wind developments after facing surging costs from inflation, which has sent materials and services costs higher, supply-chain backlogs, and higher cost of capital due to rising interest rates.

This has put projects currently in development--which were agreed when costs were much lower--at risk of becoming unprofitable and forcing developers to consider the viability of moving ahead with them.

New York regulators last month denied requests from offshore wind developers including BP, Equinor and Orsted to give them a higher price for electricity generated from their projects off the state's coast.

But in recent days officials have unveiled a series of wind-farm proposals that would result in higher electricity rates for residents than previously approved plans, which has seen developers behind older bids moving to see if they can resubmit their plans at or near the new rate.

Orsted said Wednesday that it is awaiting details but this could provide an opportunity to rebid its Sunrise Wind project at a price level that reflects current component and financing costs.

Norway's Equinor and Britain's BP are developing three wind farms off the coast of New York and they said in June that they need to renegotiate power prices or the projects won't get financing.

Equinor last week said it wrote down about $300 million from the New York projects while BP yesterday booked a $540 million impairment. The two companies are now assessing their next move.

Separately, the company said its third-quarter earnings before interest, taxes, depreciation and amortization excluding new partnerships--the company's preferred metric--rose to DKK5.17 billion from DKK2.97 billion, beating a company-compiled consensus of DKK3.86 billion.

The company still sees full-year Ebitda excluding new partnership agreements and provisions of between DKK20 billion and DKK23 billion. Gross investments for the year are now seen at DKK40 billion to DKK44 billion from DKK44 billion to DKK48 billion previously.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

November 01, 2023 05:22 ET (09:22 GMT)

Copyright (c) 2023 Dow Jones & Company, Inc.