Renewable energy company Orsted has announced the halt of development on two offshore wind projects in the United States, citing higher interest rates and supply chain problems. The decision, which comes as Orsted’s stock has already dropped 40% since August, caused shares to plunge an additional 22% in early trade. The projects in question, Ocean Wind 1 and 2 in New Jersey, have a combined capacity of 2,248-megawatts. Orsted, the world’s largest offshore wind developer, stated that impairments related to the halt could reach as much as 39.4 billion Danish crowns ($5.58 billion).
The CEO of Orsted, Mads Nipper, explained that significant supply chain challenges and rising interest rates led to the decision. The company had previously flagged potential impairments of 16 billion crowns due to supply chain issues, borrowing costs, and a lack of new tax credits. However, the updated number now stands at 28.4 billion crowns, with provisions for the cancellation of the two projects amounting to between 8 billion and 11 billion in the fourth quarter.
Analysts, such as Deepa Venkateswaran from Bernstein, noted that the writedowns were in line with expectations and that halting the most advanced project, Ocean Wind 1, sends a positive signal that Orsted is committed to valuable projects.
The decision by Orsted to halt development on the offshore wind projects adds to a growing trend of challenges facing the wind energy sector. Soaring costs from rising inflation, interest rate hikes, and supply chain delays are casting doubt on plans by the U.S. President Joe Biden and several states to use offshore wind as a replacement for fossil fuels and to reduce carbon emissions.
This trend was also seen with energy major BP, which recorded a third-quarter writedown of $540 million on wind projects after officials in New York rejected a request for better terms. Similarly, Norway’s Equinor, BP’s partner on the New York offshore wind developments, booked a $300 million impairment on the projects.
Orsted’s decision reflects the current difficulties faced by the offshore wind industry and highlights the need for companies to carefully evaluate the economic viability of their projects in the face of supply chain challenges, inflationary pressures, and interest rate fluctuations.