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The world’s largest offshore wind developer Ørsted has abandoned two important US projects and announced a higher-than-expected write-down of its investment portfolio, in a major blow to US efforts to develop renewable energy.
Ørsted’s shares fell 15 percent on Wednesday after the group reported losses of 28.4 billion Danish kroner ($4 billion), saying it had “no choice” but to halt work on two projects off the coast of New Jersey.
The offshore wind industry, which governments have supported as part of the response to global warming, has been hard hit by supply chain disruptions, rising costs and rising interest rates.
The challenges have been particularly acute in the United States, where contracts signed by developers typically have less protection against inflation, and the industry’s supply chain is still in its infancy.
The US offshore wind industry is “fundamentally broken,” Anja Isabel Dotzenrath, BP’s head of low-carbon energy, told a Financial Times conference on Wednesday, warning that a “fundamental reset” is needed. To help the emerging market grow.
Ørsted’s write-down exceeds the DKK 16 billion that the company, majority owned by the Danish state, announced in August. Since then, the company said its U.S. offshore wind projects have “experienced more adverse developments,” citing changes in assumptions related to tax credits and construction permits.
As a result, the company said it is now “taking actions to support its capital structure,” such as rationalizing its investment portfolio.
Mads Nipper, CEO of Ørsted, said the global maritime industry was being hit by a “perfect storm.” The pressure “is the same everywhere, but it is not as deep as in the US market,” he said.
While Ørsted is abandoning two projects, Ocean Wind 1 and 2, it is moving forward with a third, Revolution Wind, which it expects to be completed in 2025. Nipper said he was “extremely disappointed” to have to stop the projects, adding that the United States “needs To offshore wind to achieve its ambition to reduce carbon emissions.”
Offshore developers were eligible for significant subsidies under the US Inflation Reduction Act, which was passed in 2022 to accelerate the country’s transition to renewable energy. Ocean Wind projects promise to generate more than 2 gigawatts of offshore wind energy in New Jersey.
Nipper, who has led Ørsted since early 2021, acknowledged that asset writedowns would hurt investor confidence, but said: “We believe the clarity for investors, despite the frustratingly high impairment, is much greater with today’s announcement.”
The withdrawal of the two US projects “may actually provide better visibility on Ørsted going forward,” said Alexander Wheeler, an analyst at RBC Capital Markets.
But shares in the Copenhagen-listed group fell 15 percent in early afternoon trading, extending their decline this year to 54 percent.
The drop in value came a day after BP booked a $540 million writedown on two offshore wind projects off the coast of New York after authorities rejected a request to renegotiate the contracts.
In recent years, Ørsted has transformed itself from an oil and gas producer into a leading wind energy company.
The company has not yet decided whether it will give final approval for the North Sea project, but Nipper said it aims to make a decision by the end of the year.
He added: “It still depends on creating acceptable value.”
In a sign of the pressures on the industry, Swedish developer Vattenfall halted work on the Norfolk Boreas project in the UK’s North Sea in July, saying it was no longer viable at the electricity price it agreed with the government a year ago.
Aside from the growing challenges in the United States, Nipper said the third quarter was “really good,” with the company reporting an adjusted net profit of DKK 5.9 billion.
“The company’s core operations and earnings potential remain strong,” he said.
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