Eversource Energy: Offshore Wind Exit at Risk After New York Decision

We are reaffirming our $74 per share fair value estimate for Eversource ES after New York regulators rejected its request to adjust the contract pricing for its co-owned Sunrise Wind offshore wind project. We are reaffirming our no-moat rating for Eversource.

We think recent developments in New York could make it difficult for Eversource to exit its offshore wind investments, a process management first announced in mid-2022. So far, Eversource has sold its undeveloped acreage for $625 million and converted its South Fork ownership into a $545 million tax equity investment that management expects to yield $273 million.

Finding a buyer for its ownership stake in its two largest projects totaling 1.6 gigawatts could be more difficult as inflation and supply chain constraints eat into forecast returns. Eversource and partner Orsted had asked New York regulators to add adjustments for inflation and delays in their fixed-price contract signed in 2019 for Sunrise Wind. We’re not surprised regulators denied the request similar to regulators in other Northeast states.

Eversource took a $0.95 per share charge during the second quarter related to its offshore wind investments. We estimate that is 15%-20% of Eversource’s offshore wind investment to date. This is in line with the discount we expected Eversource would have to take and is already incorporated into our fair value estimate.

Eversource stock is down 33% since January, trailing the Morningstar US Utilities Index likely due to its offshore wind setbacks. We consider the stock 26% undervalued, down from 15% overvalued in January.

We continue to expect annual long-term earnings growth within management’s 5%-7% range based on at least $17 billion of investment at its transmission and distribution utilities in 2023-26. However, that growth could slow temporarily if Eversource isn’t able to raise capital from its offshore wind divestitures to help fund those investments.