Danish company Orsted, a major offshore wind farm developer, said Wednesday it would cancel plans to build two wind farms off the coast of New Jersey, causing the company to write off more than $5.6 billion .
it was a trick In further evidence that offshore wind is undergoing a major shakeup in the United States, the Biden administration plans to make the industry a key component of a plan to reduce greenhouse gas emissions. Due to high inflation and rising interest rates, planned projects that appeared to be winners several years ago are no longer profitable.
“The world has in many ways been turned upside down from a macroeconomic and industry perspective,” Orsted Chief Executive Officer Mads Nipper told reporters on Wednesday. The two projects, known as Ocean Wind 1 and 2, were destined to provide New Jersey with green energy.
Offshore wind and other parts of the renewables industry have caused some disruption in Europe, particularly Britain, but Mr. Nipper said the problems were more serious in the United States, because early contracts lacked inflation protections and delays. Due to this, developers faced high costs. in approvals during the Trump administration.
The company’s stock price fell nearly 20 percent Wednesday morning as the company reported a loss of nearly $3.2 billion for the third quarter and warned that the write downs – essentially, a reduction in the value of the company’s investments – would hurt Orsted’s finances. Will influence.
Ørsted is now writing off 28.4 billion krone, or about $4 billion. The company estimates it could incur additional charges of up to 11 billion kroons at the end of the year.
Ørsted is not alone in facing threats in the budding offshore market in the United States.
On Tuesday, London-based energy giant BP said it would waive $540 million on three planned wind projects in New York after state officials refused to renegotiate their terms. BP says it is assessing its future plans in light of the decision.
In its announcement, Orsted said it would move forward with a $4 billion project called Revolution Wind aimed at supplying electricity to consumers in Rhode Island. And other developers have projects under construction, like Vineyard Wind, which will eventually have 62 turbines in the waters off Martha’s Vineyard, Mass.
Offshore wind isn’t dead, but the industry and its supporters are certainly learning some hard lessons. The ambitions of the Biden administration and East Coast states like New York, New Jersey and Massachusetts to establish large amounts of clean electricity generation through offshore wind in the coming decades are likely to be dealt a blow.
The industry is dealing with equipment shortages as a result of pandemic-era supply chain issues, and trying to manage a rising number of orders for wind turbines as governments try to meet green energy targets. And rising interest rates, as central banks around the world try to curb inflation, have pushed up financing costs.
Consumers will likely pay more in their electricity bills for power generated from offshore wind, as developers demand protection from higher prices and inflation.
Mr Nipper said the resurgence of interest in developing offshore wind energy on the East Coast depends on “the recalibration of the cost of offshore energy”.
New York state declined to renegotiate existing offshore wind energy contracts in October, but subsequent auctions gave developers deals to supply power at substantially higher prices and with various provisions to protect against inflation.
Still, there is no doubt that the confluence of challenges that Mr Nipper described as a “perfect storm” is taking a toll on an industry that governments rely on to tackle climate change by producing large quantities of clean and relatively inexpensive Expecting to produce electricity.
Ørsted has been both a pioneer and leading developer of offshore wind. After building the first offshore wind farm in Denmark in the early 1990s, the company has built a global portfolio with projects in the UK, Poland and Taiwan, as well as the United States.
Mr Nipper said the company would consider various cost-saving measures, including reshaping its portfolio. The company is likely to be more cautious in its investment plans, at least in the near term.
Ørsted’s problems are not occurring in a vacuum. Siemens Energy, a large German power equipment maker, recently said it was seeking government help to finance guarantees for orders because of problems at its wind turbine unit, Siemens Gamesa, and anticipated big losses. Has been.
In Orsted’s case, the massive decline resulted from the company’s decision to cancel a large project in New Jersey called Ocean Wind 1, which was well underway. Ørsted also decided to launch a collaborative project called Ocean Wind 2.
Write-offs will include the investment already made by the company in building the project, payments to suppliers for goods already ordered or delivered, and penalties for walking away from the contract.