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Orsted Launches Cost-Saving Plan After U.S. Wind Projects Cancellation — Update

By Dominic Chopping


Orsted has launched a comprehensive new plan with cost cuts, a pause in dividends, asset sales and new business priorities following a year beset by troubles in the U.S. offshore wind market.

Faced with spiraling costs and supplier delays, the Danish renewable-energy company booked a 26.8 billion Danish kroner ($3.86 billion) impairment charge and a DKK9.6 billion provision in 2023 as it walked away from two major wind farm projects off the coast of New Jersey.

As it continues to shuffle its portfolio, Orsted last month cancelled a deal to supply power from another U.S. offshore project due to what it saw as unfavourable terms and said it will purchase 50% of another project to become sole owner, subject to securing higher tariffs.

The emerging U.S. offshore wind industry has proven challenging for developers, as high interest rates, inflation and supply-chain woes have sent costs soaring and forced developers to book impairments and put off or cancel projects.

Developers sign long-term deals that give them subsidies and set prices for the electricity produced at their projects long before construction starts, so as costs have increased, developers have been forced to consider the viability of moving ahead with them.

In a bid to ensure projects proceed, New York state launched a new accelerated solicitation round, giving developers the chance to exit their old contracts and re-submit their project proposals to secure higher prices.

Developing offshore projects is capital intensive and analysts had been keen to understand how Orsted would pay for future projects, with the company planning a DKK270 billion investment program between 2024 and 2030.

The company said its business plan is fully financed without any need for raising new equity and will be funded through operating cash flow, partnerships and divestments, tax equity, as well as debt and hybrid issuance.

Project cancellations and phasing of capital expenditure will result in DKK35 billion of capital expenditure relief between 2024 and 2026 compared to previous plans, portfolio changes in the U.S. will result in DKK3 billion of development expenditure reductions, while an accelerated divestment program will generate proceeds of DKK115 billion toward 2030.

In addition, Orsted is pausing dividends in 2023, 2024, and 2025 and aims to reduce its fixed costs by DKK1 billion by 2026.

Around 600-800 positions will be cut globally, with 250 people to be made redundant in the coming months, it said.

To reduce development costs, it will exit offshore markets including Norway, Spain, and Portugal, deprioritise development activities in Japan and plan for a leaner development within floating offshore wind and power-to-X projects that convert electricity into carbon-neutral fuels such as hydrogen.

"Orsted's strategic update is everything [the] market expected," Citi analysts Jenny Ping and Rory Graham-Watson said in a note. "Question is, is this enough for the shares to go further...For Orsted, it's all about delivery of targets and building investor confidence, which will take time."

The measures were announced alongside the company's earnings, where it reported fourth-quarter earnings before interest, taxes, depreciation and amortization excluding new partnerships--the company's preferred metric--of DKK8.62 billion from DKK6.62 billion, beating a FactSet consensus of DKK6.08 billion.

The company sees 2024 Ebitda excluding new partnership agreements and provisions of between DKK23 billion and DKK26 billion, before rising to DKK39 billion-DKK43 billion in 2030.

Gross investments in 2024 are seen at DKK48 billion to DKK52 billion.


Write to Dominic Chopping at


(END) Dow Jones Newswires

February 07, 2024 04:04 ET (09:04 GMT)

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