President Biden's 'wind revolution' is blowing down as the world's largest offshore wind farm developer abandoned two major US projects due to supply chain and interest rate impacts and recorded impairment charges well above previous forecasts.
Orsted A/S announced, "US offshore wind projects have experienced further negative developments from adverse impacts relating to supply chains, increased interest rates, and the lack of an OREC (Offshore Renewable Energy Certificate) adjustment on Sunrise Wind," which has forced it to cease the development of the Ocean Wind 1 and 2 projects off the coast of New Jersey.
Orsted said, "Total impairments recognized in the interim financial report for the first nine months of 2023 amount to DKK 28.4 billion [$4 billion], and the majority of these (DKK 19.9 billion) relate to Ocean Wind 1." This figure is much larger than the previously announced impairment in August on its US portfolio of up to DKK 16 billion.
"This is a consequence of additional supplier delays further impacting the project schedule and leading to an additional significant project delay," the company said.
Mads Nipper, chief executive, said he was "extremely disappointed to announce that we are ceasing the development of Ocean Wind 1 and 2," adding, "The significant adverse developments from supply chain challenges, leading to delays in the project schedule, and rising interest rates have led us to this decision, and we will now assess the best way to preserve value while we cease development of the projects."
Shares in Denmark-listed green energy giant crashed as much as 22%, falling to lows not seen in six years.
Analysts from Citi were negative on today's developments:
Citi (Neutral, PT DKK417)
- Bad news continues to drip out of Orsted, analyst Jenny Ping writes in a note
- Impairment charge of DKK28.4b higher than Citi's forecast of DKK20b and consensus of DKK17b
- The recognition of deteriorating balance sheet and unachievable long-term targets is likely to put capital increase and further guidance cuts back on the table
- While Orsted release highlights the ongoing challenges of the offshore sector, there is only a limited read-across for Vestas. It should not impact its 2025 targets, nor change our thesis that US onshore remains the most attractive market, Citi analyst Martin Wilkie writes
Morgan Stanley (overweight, PT DKK 640)
- Analyst Robert Pulleyn thinks the company's increased clarity on its US portfolio will ultimately be taken positively even as the impairment is larger than expected and project cancellations will trigger EPS downgrades
RBC (Sector perform, PT DKK690)
- Analyst Alexander Wheeler says there may be an opportunity to rebid Sunrise Wind, and the cancellation of development of Ocean Wind 1 and 2 — which is expected to be received negatively today — could provide better visibility on Orsted going forward
In August, Nipper warned: "The situation in US offshore wind is severe." Weeks later, he told Bloomberg: "We are still upholding a real option to walk away."
The Biden administration has touted offshore wind farms as an essential component of decarbonizing America's grid. Under the Inflation Reduction Act, Orsted has received upwards of 30% tax credits, but more appears to be needed as a financial crisis is brewing in the offshore wind power industry.
Last week, Siemens Energy in Germany crashed after the company warned its wind turbine business is grappling with quality issues and offshore ramp-up challenges.
In the solar industry, SolarEdge Technologies shares plunged about two weeks ago after it warned about sliding European demand.
The renewable energy bubble is in meltdown.