Title: Ørsted’s Abandonment of US Offshore Wind Projects Sends Shockwaves Through Renewable Energy Industry
Subtitle: Supply chain disruptions, rising costs, and insufficient protection against inflation pose challenges for offshore wind developers in the US
Date: [Insert Date]
In a significant setback to American efforts to develop renewable energy, Ørsted, the world’s largest offshore wind developer, has announced the abandonment of two crucial US projects and disclosed a higher than expected writedown of its portfolio. The news sent shockwaves through the renewable energy industry, with shares in Ørsted falling 15% on Wednesday.
The offshore wind industry, hailed as a key solution to global warming, has been grappling with numerous challenges including supply chain disruptions, rising costs, and higher interest rates. These obstacles have been particularly acute in the United States, where the industry’s supply chain is still in its infancy, and contracts often lack protection against inflation.
During a Financial Times conference, Anja-Isabel Dotzenrath, BP’s head of low carbon energy, described the US offshore wind industry as “fundamentally broken” and called for a “fundamental reset” to facilitate its growth.
Ørsted’s latest writedown comes as a blow to the company. Shares plummeted following the announcement of DKr28.4bn ($4bn) in impairments, surpassing the DKr16bn flagged in August. The Danish state-majority-owned firm cited changes to assumptions over tax credits and construction permits as contributing factors to the decision to abandon the two US projects off the New Jersey coast.
Mads Nipper, the CEO of Ørsted, stated that the offshore wind industry globally had been hit by a “perfect storm,” with the challenges in the US market being particularly severe. Despite expressing disappointment over the project cancellations, Nipper emphasized the importance of offshore wind for the US in achieving its carbon emissions reduction targets.
While two projects, Ocean Wind 1 and 2, have been abandoned, Ørsted is still committed to pushing ahead with a third project, Revolution Wind, slated for completion in 2025.
Offshore developers in the US have benefited from substantial subsidies under the US Inflation Reduction Act, which aims to accelerate the nation’s transition to renewable energy. The now-defunct Ocean Wind projects had promised to generate more than 2 gigawatts of offshore wind power in New Jersey.
The decision to abandon projects may provide increased visibility on Ørsted’s future trajectory, according to Alexander Wheeler, an analyst at RBC Capital Markets. However, the company’s shares, listed on the Copenhagen stock exchange, experienced a 15% drop in early afternoon trading, continuing their decline of 54% this year.
The announcement comes on the heels of BP’s $540mn writedown on two offshore wind projects off the coast of New York after authorities rejected a request to renegotiate contracts.
Ørsted, which has successfully transitioned from an oil and gas producer to a leading wind company, has yet to provide final approval for a North Sea project, with a decision expected by the end of the year.
With challenges also affecting other players in the industry, such as Swedish developer Vattenfall suspending work on its Norfolk Boreas project in the UK North Sea, the strains afflicting offshore wind developers are becoming increasingly apparent.
Nonetheless, Ørsted remains optimistic about its underlying operations, reporting a solid adjusted net profit of DKr5.9bn for the third quarter. As the industry grapples with these headwinds, stakeholders are left pondering strategies to navigate and overcome the hurdles hindering the growth of the offshore wind sector in the US and beyond.
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