Oersted Cancel Two US Offshore Wind Projects
By Paul Homewood
Another one bites the dust:
Denmark’s Ørsted has cancelled two big offshore windfarm projects in the US at a cost of more than £3bn amid surging costs facing the global wind industry.
Shares in the world’s biggest wind power company fell 25% on Wednesday after it told investors it had no choice but to take a 28.4bn Danish kroner (£3.3bn) impairment charge and stop the developments off the New Jersey coast.
Ørsted said it had cancelled the Ocean Wind I and II schemes because of high inflation, rising interest rates and supply chain bottlenecks.
The company’s chief executive, Mads Nipper, told journalists he was extremely disappointed but it was the sensible thing to do after a sharp escalation in costs.
The decision will be a blow to Joe Biden’s plan to roll out 30GW of offshore wind capacity in US waters before 2030, and underlines the deepening financial woes of the sector worldwide.
It has also cast doubt on Ørsted’s plans to develop a third phase of the Hornsea project in British waters, which would be the single largest windfarm in the world and would play a large role in the UK’s ambition to grow its offshore wind capacity five-fold to 50GW by the end of the decade.
Nipper added that there was no doubt that the global offshore wind industry found itself in a “perfect storm” of sky-rocketing costs, caused by high inflation and rising interest rates. The industry’s woes have also been compounded by problems in the global offshore wind supply chain.
“This industry does not need to be in a crisis,” Nipper said. “We are of the opinion that it all hinges on being realistic about [what] power prices need to be.”
Many global offshore wind developers face significant financial headwinds after agreeing government subsidy agreements at record low costs before the recent surge in the price of raw materials and interest rates drove project costs higher.
On Tuesday, BP revealed a $540m (£445m) writedown on two projects off the coast of New York because of higher-than-expected costs.
The oil company’s head of low carbon energy, Anja-Isabel Dotzenrath, addressed delegates at a London conference hours after Ørsted cancelled its US projects, saying that the US offshore wind industry was fundamentally broken because government policies were not keeping up with the sector’s rapid growth.
“The way the policy works, the supply chain, the permitting, is not catching up with the growth of this sector,” she told the Financial Times energy transition summit. “There’s a fundamental reset needed in permitting, security of permitting … and how the sector is supposed to grow.”
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The two Ocean Wind projects off the New Jersey coast would have provided 2.2MW of capacity.
But it is not just the US which will be impacted by this decision. The £3.3bn write offs will have to paid for somehow. According to Oersted:
The total impairments recognised in the interim financial report for the first nine months of 2023 amount to DKK 28.4 billion, and the majority of these (DKK 19.9 billion) relate to Ocean Wind 1. The impairments and provision mentioned above will impact Ørsted’s capital structure. Therefore, Ørsted is taking measures to support its capital structure and long-term commitment to its credit rating. In addition to cost-savings initiatives, such measures include working capital improvements such as supply chain financing, prioritisation of development activities, portfolio rationalisation, and other actions aimed at strengthening the company’s capital structure.
For all the fancy words, the reality is that Oersted will have to cut back on new capital spending, which is likely to impact its UK projects, such as Hornsea.
The fact that Oersted are happy to write off £2.3bn on Ocean Wind alone shows just how hopelessly uneconomic the project is.
Oersted will carry on with their 704 MW Revolution Wind project, for the simple reason that they have already started construction. Even then they are writing off £400 million.
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NOT A LOT OF PEOPLE KNOW THAT 
As Nipper said. “We are of the opinion that it all hinges on being realistic about [what] power prices need to be.” This realism needs to include the back-up and extra grid strengthening costs associated with the white elephants.
Aye, as you say’ it all hinges on’ … I’d say the HINGES are seizing up ( is it the SALT (of Life) or are they already beginning to fall off?
“This industry does not need to be in a crisis,” Nipper said. “We are of the opinion that it all hinges on being realistic about [what] power prices need to be.”
No, what he meant to say was ‘it all hinges on being realistic about [what] Taxpayer subsidies are available’.
Let’s hope that the whole offshore wind industry collapses, closely followed by the onshore, solar farm and BESS industries.
Funny how there are no reports of windmills being destroyed in all those unnatural ( We just call Winter) Storms. Eagerly waiting / watching what this current one will do. Meantime folk are walking the beaches amongst the blowing sand ahead of the storm https://www.skylinewebcams.com/en/webcam/belgique/flandres/ostend/ostend.html
And of course we will get the bill to clear away all their crap unless the government acts to seize their assets first to fund it.
So “carbon emissions reduction ambition” is going to really hurt, just a question of who gets the biggest balance sheet pain going forward. If it’s the wind industry a lot of projects could disappear.
And who says “we can’t ever have anything nice?”
The worry is that our respective goobermints may double down on carbon taxes as a means to finance /subsidize these projects.
“Ørsted said it had cancelled the Ocean Wind I and II schemes because Trump is going to be elected, and he won’t put up with this bullshi+.”
Fixed it.
Correct
Ah, so it’s the fault of government policies not keeping up with the sector’s rapid growth. How deluded can you get?
A minor point: the planned capacity of the two Ocean Wind projects was 2.2 GW (not MW).
The bigger point is that the article you cite is rather confused about the financial impairments quoted by Orsted. The company’s press release gives a figure of DKK 28 billion for its whole US portfolio, of which they had already announced DKK 16 billion. In addition, they say nearly DKK 20 billion relates to the Ocean Wind projects. What is really going on is the Orsted have been stupidly optimistic about the viability of US offshore wind. I doubt that they have actually spent $2.8 billion on these two projects at this point. Instead they have put a very high valuation on the profits which they hoped to make from the projects.
The impact on their balance sheet illustrates that there is something more seriously wrong in the court of Denmark. For a considerable time Orsted have been funding heavy capital expenditures on new projects by selling down their shares in operating projects to naive pension fund investors. That is why they are making less profits at current high power prices out of their existing projects than you might expect. This is a house of cards that was always unstable, because if the valuations of future projects were to fall they did not have the balance sheet strength to fund the capital expenditures required.
It isn’t just Orsted that has hit the buffers. The same is true for Vattenfall. Note both are Scandinavian state-controlled companies. I suspect that Statkraft and Fortum will be subject to similar constraints. So one source of cheap money for offshore wind is closing. At the moment it is European oil companies which are replacing them, but that may not last for long because their shareholders demand much higher rates of return than offshore wind can provide. Then, where does the stupid money come from?
The word stupid made me think that the answer to your last question is Chris Bowen the Australian Federal Minister bent on offshore wind.
(I think ‘bent’ might cause some to think him as corrupt, which he might be but in this case is wrong. He is completely gullible and thinks “he is saving the world”).
The lie of cheap renewables is further exposed. It’s quite clear that the only viable business model for Oersted is massive taxpayer and customer bill payer subsidy. Meanwhile Shell and BP are subject to windfall (sic) taxes because they make profits.
Once we get beyond the satisfaction of being proven correct yet again there’s the more serious question of ‘what happens next’?
These are seismic decisions which in conjunction with disastrous government green policies will have highly dangerous knock-on consequences for UK energy security and economic stability.
Do not expect ANY apology or accountability for those who’ve driven our country down the ‘renewables’ road.
Disastrous government policies ?
Are there any other types ?
Nope!
Yes, just look at some of Covid inquiry – complete clown show. They had a former advisor to Gove on who when asked if there was a plan said Yes – but there wasn’t. You would hope that the failure to have a pandemic plan would be one major finding and result in having one. It could be that the advisor was referring to the use of the influenza plan which did more harm than good.
Incorrect, there was a plan, there was even a WHO plan as well.
They were thrown out for the “Chinese lockdown model”.
Although to be fair the 2017 study showed that the UK was totally unprepared to enact the plan and nothing was done to imrove the situation before the pandemic hit, courtesy of the Chinese/WHO lies and the total inaction of our government who decided herd immunity was preferable to actually stopping people coming in from infected areas.
Are Vestas in a similar position
Yes, but they are a turbine manufacturer. All of the main equipment manufacturers – Vestas, Siemens & GE – have made collective losses on their turbine businesses for several years – even before 2022 – because they entered into forward contracts promising too much and at too low prices. That is why the operators are now pulling back because the manufacturers will no longer sell them equipment under silly conditions. Everything in the wind supply chain is more or less falling apart.
Oh dear…what a shame…never mind!
And another…
LONDON (Reuters) – Shell’s finance chief said on Thursday the firm had exited a power purchase agreement (PPA) for the planned SouthCoast windfarm off the coast of Massachusetts, agreeing to pay a penalty rather than face rising costs for building the project.
Energy firms from BP to Orsted have announced hefty writedowns in recent days for their U.S. windfarm projects in the face of high inflation.