Orsted Books $4 Billion Impairments, Walks Away From Two US Offshore Projects -- Update
01 Novembro 2023 - 6:37AM
Dow Jones News
By Dominic Chopping
Orsted booked a 28.4 billion Danish kroner ($4.02 billion)
impairment charge in the third quarter related to its U.S. offshore
wind portfolio and said it will stop development of two wind farm
projects off the coast of New Jersey amid spiraling costs and
supplier delays.
The news sent shares lower. At 0852 GMT shares traded down 21%
at DKK268.
The Danish renewable-energy company had previously warned of up
to DKK16 billion of impairments after flagging increasing
supply-chain risks at U.S. projects, while a lack of favorable
progress on U.S. tax credits and higher interest rates were also
sending project costs higher.
Since then, the situation has worsened, with further
supply-chain issues, higher interest rates, and the lack of a
funding adjustment at its Sunrise Wind project off New York's coast
leading to the higher-than-expected impairment, the company
said.
At the Ocean Wind 1 and 2 projects offshore New Jersey, Orsted
said additional supplier delays have further impacted project
schedules, leading to a further significant delay, while updated
assumptions on tax credit monetization, timing, likelihood of final
construction permits and increases to long-dated U.S. interest
rates have further deteriorated the business case.
The company has therefore decided to cease development of the
Ocean Wind 1 and 2 projects and expects to book a provision of DKK8
billion to DKK11 billion in the fourth quarter to cover contract
cancellation fees that aren't already covered by the
impairments.
"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," said Orsted's Chief Executive Mads Nipper.
However, the company said it has taken the final investment
decision on the Revolution Wind project offshore Rhode Island,
meaning it will now proceed to construction phase. Orsted owns the
project in a 50/50 partnership with Eversource and it is expected
to be completed in 2025.
Orsted said it will now begin cost-cutting and other measures to
shore up its capital structure and will assess its long-term
strategic build-out ambitions and financial targets. It plans to
provide an update on this work no later than its fourth quarter
2023 results announcement.
Orsted isn't alone in facing the increasing financial challenge
of building new sprawling offshore projects.
Developers are struggling to justify moving ahead with large,
capital intensive offshore wind developments after facing surging
costs from inflation, which has sent materials and services costs
higher, supply-chain backlogs, and higher cost of capital due to
rising interest rates.
This has put projects currently in development--which were
agreed when costs were much lower--at risk of becoming unprofitable
and forcing developers to consider the viability of moving ahead
with them.
New York regulators last month denied requests from offshore
wind developers including BP, Equinor and Orsted to give them a
higher price for electricity generated from their projects off the
state's coast.
But in recent days officials have unveiled a series of wind-farm
proposals that would result in higher electricity rates for
residents than previously approved plans, which has seen developers
behind older bids moving to see if they can resubmit their plans at
or near the new rate.
Orsted said Wednesday that it is awaiting details but this could
provide an opportunity to rebid its Sunrise Wind project at a price
level that reflects current component and financing costs.
Norway's Equinor and Britain's BP are developing three wind
farms off the coast of New York and they said in June that they
need to renegotiate power prices or the projects won't get
financing.
Equinor last week said it wrote down about $300 million from the
New York projects while BP yesterday booked a $540 million
impairment. The two companies are now assessing their next
move.
Separately, the company said its third-quarter earnings before
interest, taxes, depreciation and amortization excluding new
partnerships--the company's preferred metric--rose to DKK5.17
billion from DKK2.97 billion, beating a company-compiled consensus
of DKK3.86 billion.
The company still sees full-year Ebitda excluding new
partnership agreements and provisions of between DKK20 billion and
DKK23 billion. Gross investments for the year are now seen at DKK40
billion to DKK44 billion from DKK44 billion to DKK48 billion
previously.
Write to Dominic Chopping at dominic.chopping@wsj.com
(END) Dow Jones Newswires
November 01, 2023 05:22 ET (09:22 GMT)
Copyright (c) 2023 Dow Jones & Company, Inc.
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