Orsted – Ørsted announces anticipated impairments on its US portfolio, continues to progress projects

August 29, 2023
ORSTED

As part of the continued maturation and a pre-final investment decision (FID) review of its near-term US offshore development projects, Ørsted has assessed the aggregate adverse impacts relating to the supply chain, lack of favorable progress in Investment Tax Credit (ITC) guidance, and increased interest rates, which affect its US portfolio.

 

The Ocean Wind 1, Sunrise Wind, and Revolution Wind projects are adversely impacted by a handful of supplier delays. Ørsted has concluded that there is a continuously increasing risk in these suppliers’ ability to deliver on their commitments and contracted schedules. This could create knock-on effects requiring future remobilizations to finish installation, as well as potentially delayed revenue, extra costs, and other business case implications. These impacts will lead to impairments of up to DKK 5 billion, assuming no further adverse developments in the supply chains on these projects. 

In addition, our continued discussions with senior federal stakeholders about additional ITC qualifications for Ocean Wind 1 and Sunrise Wind are not progressing as we previously expected. We continue to engage in discussions with federal stakeholders to qualify for additional tax credits beyond 30%. If these efforts prove unsuccessful, it could lead to impairments of up to DKK 6 billion. The level of a possible impairment will be decided based on a probability weighted assessment of the likelihood of obtaining the additional ITCs.

Furthermore, the US long-dated interest rates have increased, which affect our US offshore projects and certain onshore projects. If the interest rates remain at the current level by the end of third quarter, it will cause impairments of approximately DKK 5 billion. 

The impairments relating to Ocean Wind 1, Sunrise Wind, Revolution Wind, South Fork Wind, Block Island Wind Farm, and several US onshore projects will be recognised in our interim report for the first nine months of 2023.

While Ørsted’s near-term US offshore wind development portfolio does not meet our value creation target on a lifecycle basis, we remain convinced that the value-creation of the portfolio will be within 150 to 300 basis points spread-to-WACC on a forward-looking basis.

Adjusted for the anticipated impairments, we maintain a ROCE target for the period 2023-2030 of approximately 14%.

 

Ørsted continues to progress projects

Ørsted will continue to progress the US near-term offshore wind projects including obtaining final federal and local permits, working with suppliers to mitigate delays and continuing our dialogue with stakeholders to try to qualify for at least 40% ITCs on all projects.

We will work towards taking FID on Ocean Wind 1, Sunrise Wind, and Revolution Wind projects towards the end of 2023 or in early 2024. Pending FID, Ørsted now expects to commission Ocean Wind 1 in 2026.

David Hardy, Executive Vice President and CEO of Region Americas at Ørsted, says: “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 including continued dialogue about ITC qualification, OREC adjustments, and other business case levers.”

 

The information provided in this announcement does not change Ørsted’s previous EBITDA guidance for the financial year of 2023 or the announced expected investment level for 2023.

 

Call with management
For analysts: Ørsted will host an analyst call tomorrow, Wednesday 30 August, at 8:00-8:55 CEST with CEO Mads Nipper, CFO Daniel Lerup, and CEO of Region Americas David Hardy. See dial-in details below. 

For media: CEO Mads Nipper, CFO Daniel Lerup, and CEO of Region Americas David Hardy will host a call for media tomorrow at 8:55-9:30 am CEST. See dial-in details below.

 

Investor call 08:00-08:55 CEST
Please register via this link
Operator assisted dial-in:
Denmark: +45 89 87 50 45
United States: +1 646 664 1960
United Kingdom: +44 20 3936 2999
For global dial-in numbers please click here
Access code: 982431

 

Media call 09:00-09:45 CEST 
Please register via this link
Operator assisted dial-In:
Denmark: +45 89 87 50 45
United States: +1 646 664 1960
United Kingdom: +44 20 3936 2999
For global dial-in numbers please click here
Access Code: 253003

 

SourceORSTED

EMR Analysis

More information on Ørsted: See the full profile on EMR Executive Services

More information on Mads Nipper (Group President and Chief Executive Officer, Ørsted): See the full profile on EMR Executive Services

More information on Daniel Lerup (Chief Financial Officer, Ørsted): See the full profile on EMR Executive Services

More information on David Hardy (Group Executive Team and Executive Vice President, Ørsted + CEO, Region Americas, Ørsted): See the full profile on EMR Executive Services

 

More information on Ocean Wind 1: https://oceanwindone.com/ + The first offshore wind project in New Jersey delivering 1,100 MW of clean, reliable energy which is located 15 miles off the coast of southern New Jersey, and creating enough electricity to power half a million homes. The state of New Jersey has set an ambitious goal of 7,500 MW of offshore wind energy by 2035. The Ocean Wind 1 project will play a key role in helping the state achieve its goals, by providing clean energy, investing in New Jersey and making the state a key player in the new burgeoning offshore wind industry.

Ørsted and PSEG are proud to present New Jersey’s first utility-scale offshore wind farm – Ocean Wind. This wind farm is designed to supply clean, and reliable energy, provide significant capital investment and to contribute significantly to the state’s ambitious renewable energy goal of supplying more than 3.2 million New Jersey homes with offshore wind power by 2035. The project will utilize the GE Haliade-X 12 MW turbine, which is the most powerful turbine on the market today.

 

More information on Sunrise Wind: https://sunrisewindny.com/about-sunrise-wind + Sunrise Wind is a 50/50 partnership between Ørsted – the global leader in offshore wind – and Eversource, a national energy leader with homegrown expertise in regional energy transmission, with support from Con Edison and the New York Power Authority. This project is an approximately 924 MW offshore wind farm – the largest in New York – with the potential capacity to power nearly 600,000 homes.

 

More information on Revolution Wind: https://revolution-wind.com/ + Revolution Wind brings unparalleled experience to Connecticut and Rhode Island. This project will help both states meet their ambitious clean energy goals in an affordable way by providing 304 MW to Connecticut and 400 MW to Rhode Island.

 

 

EMR Additional Notes:

  • Final Investment Decision (FID):
    • FID is the point in the capital project planning process when the decision to make major financial commitments is taken.
    • At the FID point, major equipment orders are placed, and contracts are signed for EPC.

 

  •  ITC (Investment Tax Credit):
    • Investment tax credits are basically a federal tax incentive for business investment. They let individuals or businesses deduct a certain percentage of investment costs from their taxes. These credits are in addition to normal allowances for depreciation.
    • Investment tax credits differ from accelerated depreciation in that they offer a percentage deduction at the time an asset is purchased.
    • Investment tax credits were introduced in 1962, to protect American business from emerging foreign competition. Over time, though, their basic objective has changed. Today, credits are deployed more in areas of pollution control, energy conservation, green technology, and other methods of economic development. The many flavors of investment tax credits include the Reforestation Credit, Rehabilitation Tax Credit, Solar Energy Investment Tax Credit, and Federal Business Energy Investment Credit, among others.
    • That last one is also known as a corporate tax credit. Eligible technologies include solar thermal process heat, solar thermal electric, solar water heat, solar space heat, fuel cells, geothermal direct use, biomass, wind, geothermal heat pumps, and others.

 

  • ROCE:
    • The term return on capital employed (ROCE) refers to a financial ratio that can be used to assess a company’s profitability and capital efficiency. In other words, this ratio can help to understand how well a company is generating profits from its capital as it is put to use.
    • Financial ratio that is used to measure the profitability of a company and the efficiency with which it uses its capital. Put simply, it measures how good a business is at generating profits from capital.
    • ROCE = EBIT / Capital Employed (Total Equity + Total Debt).

 

  • WACC:
    • A company’s weighted average cost of capital (WACC) is the amount of money it must pay to finance its operations. WACC is similar to the required rate of return (RRR) because a company’s WACC is how much shareholders and lenders require from the company in exchange for their investment.
    • WACC tells us the return that lenders and shareholders expect to receive in return for providing capital to a company. For example, if lenders require a 10% return and shareholders require 20%, then a company’s WACC is 15%.

 

  • EBITDA:
    • EBITDA is short for earnings before interest, taxes, depreciation and amortization. It is one of the most widely used measures of a company’s financial health and ability to generate cash.
    • EBITDA measures the company’s overall financial performance. It is often used as an alternative to other metrics, including earnings, revenue, and income.
    • EBITDA helps you analyze and compare profitability between companies and industries, as it eliminates the effects of financing, government or accounting decisions. This provides a rawer, clearer indication of your earnings.
    • EBITDA removes real expenses that a company must actually spend capital on – e.g. interest expense, taxes, depreciation, and amortization. As a result, using EBITDA as a standalone profitability metric can be misleading, especially for capital-intensive companies.

 

 

 

 

EMR Additional Financial Notes: