Orsted, the world’s largest offshore wind developer, said it would stop developing its 2,248-megawatt (MW) Ocean Wind 1 and 2 projects in New Jersey. Related impairments could amount to as much as 39.4 billion Danish crowns ($5.58 billion).
From NOT A LOT OF PEOPLE KNOW THAT
By Paul Homewood
Another one bites the dust:
Denmark’s Ørsted has cancelled two big offshore windfarm projects in the US at a cost of more than £3bn amid surging costs facing the global wind industry.
Shares in the world’s biggest wind power company fell 25% on Wednesday after it told investors it had no choice but to take a 28.4bn Danish kroner (£3.3bn) impairment charge and stop the developments off the New Jersey coast.
Ørsted said it had cancelled the Ocean Wind I and II schemes because of high inflation, rising interest rates and supply chain bottlenecks.
The company’s chief executive, Mads Nipper, told journalists he was extremely disappointed but it was the sensible thing to do after a sharp escalation in costs.
The decision will be a blow to Joe Biden’s plan to roll out 30GW of offshore wind capacity in US waters before 2030, and underlines the deepening financial woes of the sector worldwide.
It has also cast doubt on Ørsted’s plans to develop a third phase of the Hornsea project in British waters, which would be the single largest windfarm in the world and would play a large role in the UK’s ambition to grow its offshore wind capacity five-fold to 50GW by the end of the decade.
Nipper added that there was no doubt that the global offshore wind industry found itself in a “perfect storm” of sky-rocketing costs, caused by high inflation and rising interest rates. The industry’s woes have also been compounded by problems in the global offshore wind supply chain.
“This industry does not need to be in a crisis,” Nipper said. “We are of the opinion that it all hinges on being realistic about [what] power prices need to be.”
Many global offshore wind developers face significant financial headwinds after agreeing government subsidy agreements at record low costs before the recent surge in the price of raw materials and interest rates drove project costs higher.
On Tuesday, BP revealed a $540m (£445m) writedown on two projects off the coast of New York because of higher-than-expected costs.
The oil company’s head of low carbon energy, Anja-Isabel Dotzenrath, addressed delegates at a London conference hours after Ørsted cancelled its US projects, saying that the US offshore wind industry was fundamentally broken because government policies were not keeping up with the sector’s rapid growth.
“The way the policy works, the supply chain, the permitting, is not catching up with the growth of this sector,” she told the Financial Times energy transition summit. “There’s a fundamental reset needed in permitting, security of permitting … and how the sector is supposed to grow.”
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The two Ocean Wind projects off the New Jersey coast would have provided 2.2MW of capacity.
But it is not just the US which will be impacted by this decision. The £3.3bn write offs will have to paid for somehow. According to Oersted:
The total impairments recognised in the interim financial report for the first nine months of 2023 amount to DKK 28.4 billion, and the majority of these (DKK 19.9 billion) relate to Ocean Wind 1. The impairments and provision mentioned above will impact Ørsted’s capital structure. Therefore, Ørsted is taking measures to support its capital structure and long-term commitment to its credit rating. In addition to cost-savings initiatives, such measures include working capital improvements such as supply chain financing, prioritisation of development activities, portfolio rationalisation, and other actions aimed at strengthening the company’s capital structure.
For all the fancy words, the reality is that Oersted will have to cut back on new capital spending, which is likely to impact its UK projects, such as Hornsea.
The fact that Oersted are happy to write off £2.3bn on Ocean Wind alone shows just how hopelessly uneconomic the project is.
Oersted will carry on with their 704 MW Revolution Wind project, for the simple reason that they have already started construction. Even then they are writing off £400 million
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