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Ørsted, the world’s largest offshore wind developer, has announced it will write down its portfolio more than expected, abandoning two key US projects, a major blow to US efforts to promote renewable energy.
Shares in Ørsted fell 15 percent on Wednesday after the group posted DKr28.4bn ($4bn) in shortfalls and said it had no choice but to halt work on two projects off the New Jersey coast.
The offshore wind industry, championed by governments as part of a response to global warming, has been hit hard by supply chain disruptions, rising costs and high interest rates.
The contracts developers sign typically have little protection against inflation and the industry’s supply chain is still in its infancy.
The US offshore wind industry is “fundamentally broken”, Anja-Isabel Dotzenrath, BP’s head of low-carbon energy, told a Financial Times conference on Wednesday, warning that a “fundamental reset” was needed to develop the new market.
Ørsted’s writedown surpasses the DKr16bn, which is majority-owned by the Danish government, flagged in August. Since then, its U.S. offshore wind projects have “experienced further negative developments,” the company said, citing changes in assumptions on tax credits and construction permits.
As a result, the company is now “taking steps to support its capital structure,” such as rationalizing its portfolio, he said.
Mads Nipper, Ørsted’s chief executive, said the global maritime industry had been hit by a “perfect storm”. The pressure, he said, “is the same everywhere, but nowhere is it as deep as it is in the U.S. market.”
While Ørsted is abandoning two projects, Ocean Wind 1 and 2, it is moving forward with a third, Revolution Wind, which it expects to complete in 2025. Nipper said he was “extremely disappointed” that the plans had to be put on hold. The US “needs offshore wind to meet its carbon emissions reduction ambitions”.
Offshore developers are eligible for significant subsidies under the US Inflation Reduction Act, which was passed in 2022 to accelerate the nation’s transition to renewable energy. Ocean Wind projects promise to generate more than 2 gigawatts of offshore wind power in New Jersey.
Nipper, who has been leading Ørsted since early 2021, said it was dashing investor confidence.
Alexander Wheeler, an analyst at RBC Capital Markets, said pulling the two U.S. projects “may actually give Ørsted a better outlook going forward.”
But shares in the Copenhagen-listed group fell 15 percent in afternoon trade, extending their fall this year to 54 percent.
The shortfall came a day after BP booked a $540mn writedown on two offshore wind projects off the New York coast after officials rejected a request to renegotiate the contracts.
In recent years, Ørsted has transformed itself from an oil and gas producer to a leading wind company.
Nipper said the company has not yet decided whether to give final approval to the North Sea project, but aims to make a decision by the end of the year.
“It continues to generate acceptable value,” he added.
In a sign of the strains affecting the industry, Swedish developer Vattenfall halted work on its Norfolk Boreas project in the UK North Sea in July, saying it was no longer viable at the electricity prices agreed with the government a year ago.
Beyond deeper challenges in the US, Nipper “did really well” in the third quarter, with the company reporting an adjusted net profit of DKr5.9bn.
“The company’s fundamental operations and earnings potential are solid,” he said.