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The world’s largest offshore wind developer Ørsted has abandoned two key U.S. projects and announced a larger-than-expected writedown of its portfolio, in a major setback for American efforts to develop renewable energy.
Shares in Ørsted fell 15 percent on Wednesday after the group recorded DKr28.4 billion ($4 billion) in impairments and said it had “no choice” but to work on two projects off the coast of New Jersey.
The offshore wind industry, championed by governments as a response to global warming, has been hit hard by supply chain disruptions, rising costs and higher interest rates.
The challenges have been particularly acute in the United States, where the contracts signed by developers typically provide less inflation protection and the industry’s supply chain is still in its infancy.
The U.S. 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 cope with the emerging market to help with growth.
Ørsted’s write-off exceeded the DKr16 billion that the company, majority owned by the Danish state, announced in August. Since then, its U.S. offshore wind projects have “experienced further negative developments,” the company said, citing changing assumptions on tax credits and construction permits.
As a result, the company said it is now taking “actions to support its capital structure,” such as streamlining its portfolio.
Mads Nipper, chief executive of Ørsted, said the global offshore industry had been hit by a “perfect storm”. The pressure, he said, “is the same everywhere, but nowhere near as great as in the U.S. market.”
While Ørsted is abandoning two projects, Ocean Wind 1 and 2, the company is moving forward with a third, Revolution Wind, which is expected to be completed in 2025. Nipper said he was “extremely disappointed” that he had to stop the projects, adding the US “needs offshore wind energy to meet its carbon emissions reduction goal.”
Offshore developers were eligible for significant subsidies under the US Inflation Reduction Act, passed in 2022 to accelerate the country’s transition to renewable energy. The Ocean Wind projects had promised to generate more than 2 gigawatts of offshore wind power in New Jersey.
Nipper, who has led Ørsted since the start of 2021, acknowledged that the writedowns would shake investor confidence, but said: “We believe that despite the frustratingly high impairments, the clarity for investors has become much greater with today’s announcement.”
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Alexander Wheeler, an analyst at RBC Capital Markets, said the cancellation of the two U.S. projects “could actually provide greater visibility for Ørsted in the future.”
But the group’s Copenhagen-listed shares lost 15 percent in early afternoon trading, extending their decline this year to 54 percent.
The impairment came a day after BP took a $540 million writedown on two offshore wind projects off the coast of New York after authorities rejected a request to renegotiate contracts.
In recent years, Ørsted has evolved from an oil and gas producer into a leading wind company.
The company has yet to decide whether to give final approval to a North Sea project, but Nipper said it aims to make a decision by the end of the year.
“It still depends on acceptable value creation,” he added.
In a sign of strain on the industry, Swedish developer Vattenfall stopped work on its Norfolk Boreas project in Britain’s North Sea in July, saying it was no longer profitable at the electricity price agreed with the government a year earlier.
Aside from the worsening challenges in the US, Nipper said the third quarter was “really good”, with the company reporting an adjusted net profit of DKr5.9 billion.
“The company’s underlying business and earnings performance remains solid,” he said.
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