Orsted Announces Impairments and Halts Development of Select US Offshore Wind Projects
Posted 01/11/2023 13:01
Denmark's leading offshore wind farm developer, Orsted, has encountered significant financial setbacks, recording a substantial 28.4 billion Danish crowns ($4.03 billion) impairment charge during the first nine months of 2023. Consequently, the company has made the difficult decision to discontinue work on its U.S. offshore wind projects Ocean Wind 1 and 2.
The decision was influenced by various challenges, including persistent supply chain issues, rising interest rates, and the absence of an offshore renewable energy certificate (OREC) adjustment for its Sunrise Wind project, Orsted confirmed in a statement.
The cessation of the Ocean Wind 1 development is expected to have a notable impact on the company's fourth-quarter 2023 earnings before interest, taxes, depreciation, and amortization (EBITDA). Orsted anticipates a provision of 8 to 11 billion Danish crowns, accounting for potential contract cancellation fees not covered by the impairments, excluding any potential reuse value of existing contracted equipment.
Orsted's CEO, Mads Nipper, attributed the challenging decision to "significant adverse developments from supply chain challenges, leading to delays in the project schedule, and rising interest rates."
In light of the impairment charges and project halts, Orsted has adjusted its gross investment projection for 2023 to 40 to 44 billion Danish crowns, reflecting a reduction of 4 billion Danish crowns from the initial forecast.
The company had previously warned of potential U.S. impairments amounting to $2.3 billion in August, citing similar challenges such as supply chain disruptions, escalating interest rates, and the absence of new tax credits. These concerns now coincide with the latest developments and cast uncertainty on the feasibility of offshore wind as a viable replacement for fossil fuels in the United States' energy landscape, aligning with the growing emphasis on reducing carbon emissions.
Orsted's decision to prioritize the completion of the Revolution Wind project, expected to be finalized by 2025, signals the company's commitment to overcoming these challenges and continuing its pursuit of sustainable energy solutions on a global scale.