Orsted Makes Strategic Decisions on US Offshore Wind Projects

By Editor


Orsted, the Danish renewable energy company, has announced significant developments in its US offshore wind portfolio. The company is making strategic decisions in response to a series of challenges and changing market conditions.

Impairment Update:

In August 2023, Orsted had anticipated impairments on its US portfolio of up to DKK 16 billion. Since that announcement, the US offshore wind projects have faced additional negative developments related to supply chain disruptions, increased interest rates, and issues with Offshore Renewable Energy Certificates (OREC) for the Sunrise Wind project. As a result, the total impairments recognized in the interim financial report for the first nine months of 2023 have risen to DKK 28.4 billion, with a significant portion of DKK 19.9 billion related to the Ocean Wind 1 project.

Ceasing Development of Ocean Wind 1 and 2:

Due to further supplier delays affecting project schedules, updated assumptions, including tax credit monetization and construction permits, and the impact of rising US interest rates, Orsted has made the decision to cease the development of the Ocean Wind 1 and 2 projects. This choice will negatively impact Orsted’s Q4 2023 EBITDA. A provision has been made for potential contract cancellation fees not covered by the impairments, with an estimated value of approximately DKK 8-11 billion.

Orsted’s decision to cancel two offshore wind farms off New Jersey was based in large part on big delays securing the ship it needed to build the project, Reuters news report said.

Mads Nipper, Group President and CEO of Orsted, revealed disappointment about the decision but highlighted the company’s commitment to the US renewables market and support for the US government’s efforts in offshore wind energy. He emphasized that challenges such as supply chain disruptions and rising interest rates have led to this decision, and Orsted will explore ways to preserve value while discontinuing development on these projects.

Capital Structure and Strategic Review:

The impairments and provisions will affect Orsted’s capital structure. The company is taking measures to support its capital structure and long-term credit rating. These measures include cost-saving initiatives, supply chain financing, portfolio rationalization, and other actions aimed at strengthening the company’s financial position. Orsted will assess the potential implications of these developments on its long-term strategic goals and financial targets.

Revolution Wind:

On a more positive note, Orsted has made the final investment decision on the 704 MW Revolution Wind project, which is co-owned with Eversource in a 50/50 partnership. Onshore construction has commenced, and offshore construction is scheduled for 2024, with project completion expected in 2025. Despite the impairment of DKK 3.3 billion recorded in the Q3 results, Revolution Wind offers an attractive forward-looking value creation that aligns with Orsted’s financial objectives.

Sunrise Wind and Skipjack Wind:

Orsted is actively considering opportunities related to its Sunrise Wind project based on New York State’s request for information on an accelerated solicitation for offshore wind capacity. Additionally, the company is working to reconfigure the Skipjack Wind project with minimal expenditure and expects more clarity on its path forward in the Q4 2023 report following discussions with stakeholders in Maryland.

2023 Guidance:

Orsted’s previously guided EBITDA for 2023, excluding new partnership agreements, remains unchanged at DKK 20-23 billion, with the exclusion of the provision related to Ocean Wind 1, which is estimated to be approximately DKK 8-11 billion. Due to the change in project schedules and investment decisions, Orsted’s gross investment for 2023 is now expected to range from DKK 40-44 billion, representing a reduction of DKK 4 billion.

The decisions made by Orsted reflect the complex dynamics of the renewable energy industry, and the company remains committed to advancing the offshore wind sector while navigating evolving market conditions.

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