Orsted Exits Multiple Wind Projects Worth Nearly $10 Billion

Orsted has opted to exit a partnership focused on developing offshore wind projects in Norway, citing a strategic shift in investment priorities within its portfolio. The company withdrew from the consortium, which included Fred. Olsen Renewables AS and Hafslund Eco, indicating a broader adjustment in response to significant losses attributed to escalating costs.

This move reflects the world’s largest wind farm developer’s strategic reevaluation, following similar actions in the United States where it curtailed certain projects, contributing to a net loss in the third quarter.

The offshore wind industry, in general, is grappling with challenges as companies face difficulties securing funding for large-scale projects. Factors such as heightened financing and component costs, coupled with increased market competition, have collectively decelerated the global pace of renewable energy development.

Alana Kuhne, the Vice President and Head of New Markets in Europe at Orsted, emphasized the company’s careful prioritization of investments, leading to a decision not to prioritize offshore wind development in Norway at present and abstain from upcoming tenders.

This development follows Orsted’s earlier decision to halt two U.S. offshore wind projects, with related impairments surpassing $5 billion, underscoring the industry’s struggle with supply chain delays and escalating costs. Orsted’s discontinuation of its 2,248-megawatt Ocean Wind 1 and 2 projects in New Jersey, along with associated impairments potentially reaching 39.4 billion Danish crowns ($5.58 billion), resulted in a significant stock decline.

The offshore wind industry faces a confluence of challenges, including rising inflation, interest rate hikes, and supply chain delays, casting uncertainty on plans by U.S. President Joe Biden and several states to leverage offshore wind for transitioning away from fossil fuels. Energy major BP also reported a third-quarter writedown of $540 million on wind projects in response to New York state officials rejecting requests for improved terms due to inflationary pressures and permitting delays.

Despite these headwinds, the White House expressed commitment to supporting the emerging U.S. offshore wind industry, citing incentives included in the Inflation Reduction Act. Orsted had previously signaled potential U.S. impairments of 16 billion crowns, with the figure subsequently raised to 28.4 billion crowns in November, reflecting challenges such as supply chain issues, increased borrowing costs, and the absence of new tax credits.

Orsted’s CEO, Mads Nipper, acknowledged the misjudgment in the early-stage investment in Ocean Wind 1, emphasizing the company’s dedication to learning from this experience in future project development. Nipper highlighted the need for a reset in offshore power cost expectations amid the industry’s challenges.

As Orsted, which had announced plans to invest 475 billion crowns by 2030, undergoes a review of its investments, considerations for cost-saving initiatives are on the table. Analysts note that Orsted’s writedowns align with expectations, but concerns about potential broader impacts on the portfolio and confidence in the management team persist.

Despite a 52% decline in share price since an August profit warning, the decision to halt the development of Ocean Wind 1 is seen as a positive signal of the company’s commitment to proceeding only with valuable projects.

Information for this briefing was found via Bloomberg, Reuters, and sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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