Orsted: Acquires Stake of Its Partner Eversource in Seabed Leases at a Decent Price; Shares Cheap

We confirm our DKK 780 fair value estimate after narrow-moat Orsted ORSTED agreed to buy the 50% stake of its partner Eversource in an uncommitted seabed off the U.S. Northeast coast as well as some infrastructure assets to be used in future awarded projects for $625 million. Eversource still intends to sell its 50% stake in the three U.S. offshore wind projects it is developing with Orsted off the Northeast coast: Revolution Wind, South Fork, and Sunrise Wind totaling 1.76 gigawatts of capacity. However, Eversource will provide tax equity for the 130-megawatt South Fork project, which is under construction, meaning it will fund the bulk of construction costs and get most of the investment tax credit. This is critical since Orsted’s profits in the U.S. are too low to monetize the tax credits of all its projects, especially since the Inflation Reduction Act, which increased the investment tax credit from 30% to 40% for offshore wind. Orsted should update its returns, growth targets, and funding sources at its capital markets day to be held on June 8. At their current level, we believe the shares price in a rights issue, in line with the option recently chosen by other renewables companies like EDP Renovaveis and Neoen. This is not our base-case scenario as the tax equity agreement for South Fork should give financial headroom to fund the seabed lease acquisition.

Orsted will pay a net price of $525 million for Eversource’s seabed stake of 93,500 acres with the potential for 4 GW of capacity. This implies a price of $5,600 per acre, 37% below the record $8,900 of the New York Bight seabed auction of February 2022, which makes sense given spiraling interest rates in the meantime. Orsted highlights that the site benefits from higher wind speeds, a shallower water depth than nearby lease areas, and that its vicinity to some existing projects will generate efficiencies. The site can serve four markets: Massachusetts, Rhode Island, Connecticut, and New York.