US Edition
The owner of the UK’s biggest offshore wind farms has lost a fifth of its value after admitting that the costs of building major projects in the US was spiralling.
Danish giant Ørsted, which operates the Hornsea 1 and 2 wind farms off the coast of Yorkshire, said it was facing a hit of 16 billion crowns (£1.9bn) from cost overruns on projects in America.
Supply chain delays, a higher cost of borrowing due to rising interest rates and trouble obtaining tax credits have left it shouldering much higher costs on planned offshore wind farms in New Jersey, New York and Rhode Island.
On a call with reporters, Mads Nipper, Ørsted’s chief executive said the situation was “severe”.
The admission sent the company’s Copenhagen-listed shares tumbling by as much as 23pc, wiping about 54.2 billion Danish crowns, or £6.2bn, from its value. Ørsted was worth 235.2 billion crowns, or about £27bn, before the announcement.
In an update to investors published late on Tuesday, the company said its projects off the US east coast had been buffeted by a string of setbacks.
The Ocean Wind 1, Sunrise Wind, and Revolution Wind schemes are awaiting deliveries from suppliers that are at risk of being late. This has created the potential for knock-on delays and cost overruns that could ultimately cost 5 billion crowns, Ørsted said.
At the same time, rising interest rates will mean borrowing costs for a string of schemes will be higher than initially expected, which could put the company in the red by a further 5 billion crowns.
Although executives hope Ocean Wind 1 and Sunrise Wind will qualify for additional tax credits, they have warned that discussions with American authorities are not going as expected – potentially meaning Ørsted will lose out on a further 6 billion crowns in hoped-for support.
As a result of these set-backs, Ørsted warned that many US offshore wind projects were now uneconomical. However, the company said it hoped the situation would improve.
In the meantime, it is continuing work on obtaining planning permissions and tax credits. It will take final investment decisions for the Ocean Wind 1, Sunrise Wind, and Revolution Wind towards the end of 2023 or in early 2024.
If Ørsted decides to go ahead with Ocean Wind 1, New Jersey’s first offshore wind farm would become operational in 2026 with capacity to power 500,000 homes.
David Hardy, the company’s executive vice president and chief executive for the Americas, said: “The US offshore wind market remains attractive in the long term.
“We will continue to work with our stakeholders to explore all options to improve our near-term projects”.
Ørsted is the latest in the offshore wind company to admit problems, as developers around the world struggle with higher supply chain costs and interest rates.
Vattenfall, the Swedish state-owned energy giant, warned in July that surging inflation had forced it to shelve plans for a major wind farm off the coast of Norfolk.
The company said it had ceased work on the Boreas project, which could have powered 1.5 million homes, after costs jumped by 40pc.
In the UK, offshore wind farm developers have said that higher Government subsidies are needed if ministers still intend to hit their target of 50 gigawatts of wind power by 2030.