Orsted – Ørsted ceases development of its US offshore wind projects Ocean Wind 1 and 2, takes final investment decision on Revolution Wind, and recognises DKK 28.4 billion impairments

October 31, 2023
ORSTED

Following decisions of its Board of Directors, Ørsted will cease development of the Ocean Wind 1 and 2 projects and has taken final investment decision on the Revolution Wind project. 

 

The decisions are part of an ongoing review of Ørsted’s US offshore wind portfolio. 

 

Impairment update

On 29 August 2023, Ørsted announced anticipated impairments on its US portfolio of up to DKK 16 billion. 

Since the announcement, the US offshore wind projects have experienced further negative developments from adverse impacts relating to supply chains, increased interest rates, and the lack of an OREC (Offshore Renewable Energy Certificate) adjustment on Sunrise Wind. The total impairments recognised in the interim financial report for the first nine months of 2023 amount to DKK 28.4 billion, and the majority of these (DKK 19.9 billion) relate to Ocean Wind 1. 

Ocean Wind 1 and 2

Ørsted has taken the decision to cease the development of the Ocean Wind 1 and 2 projects. This is a consequence of additional supplier delays further impacting the project schedule and leading to an additional significant project delay. In addition, Ørsted has updated its view on certain assumptions, including tax credit monetization and the timing and likelihood of final construction permits. Finally, increases to long-dated US interest rates have further deteriorated the business case. 

A provision related to Ørsted ceasing the development of Ocean Wind 1 will negatively impact Q4 2023 EBITDA. The provision accounts for potential contract cancellation fees not already covered by the impairments but excludes any potential reuse value of existing contracted equipment. Ørsted currently estimates the provision to be approximately DKK 8-11 billion.

Mads Nipper, Group President and CEO of Ørsted, says: 

“We are extremely disappointed to announce that we are ceasing the development of Ocean Wind 1 and 2. We firmly believe the US needs offshore wind to achieve its carbon emissions reduction ambition, and we remain committed to the US renewables market and truly value the efforts by the US government to support the build-up of the US offshore wind industry. However, the significant adverse developments from supply chain challenges, leading to delays in the project schedule, and rising interest rates have led us to this decision, and we will now assess the best way to preserve value while we cease development of the projects. At the same time, with an attractive forward-looking value creation, we progress the Revolution Wind project into the construction phase.”

 

Capital structure

The impairments and provision mentioned above will impact Ørsted’s capital structure. Therefore, Ørsted is taking measures to support its capital structure and long-term commitment to its credit rating. In addition to cost-savings initiatives, such measures include working capital improvements such as supply chain financing, prioritisation of development activities, portfolio rationalisation, and other actions aimed at strengthening the company’s capital structure.

As part of the ongoing review of its US portfolio, Ørsted will assess the potential implications for its current long-term strategic build-out ambition and financial targets. 

Ørsted expects to update the market no later than in the Q4 2023 results announcement, including (if relevant) potential implications to its long-term strategic ambition and financial targets.

Revolution Wind

Ørsted has today taken the final investment decision (FID) on the 704 MW Revolution Wind project, which Ørsted owns in a 50/50 partnership with Eversource. Onshore construction has started, and offshore construction will start in 2024, with the project expected to be completed in 2025. Notwithstanding the impairment of DKK 3.3 billion that Ørsted is recording in its Q3 results, Revolution Wind has an attractive forward-looking value creation with a forward-looking spread to WACC above Ørsted’s guided range. 

Sunrise Wind

Ørsted welcomes NYSERDA’s (New York State Energy Research and Development Authority) request for information on an accelerated solicitation for offshore wind capacity, which could provide an opportunity to rebid Sunrise Wind, which Ørsted owns in a 50/50 partnership with Eversource, at a price level that reflects current component and financing costs. Ørsted awaits the conditions of the request for proposal to determine whether to rebid or not. 

Skipjack Wind

Ørsted continues to reconfigure this project with minimal project spend and expects to have more clarity on its path forward in the Q4 2023 report as Ørsted continues discussions with stakeholders in Maryland. 

2023 guidance

Ørsted’s previously guided EBITDA for 2023, excluding new partnership agreements, of DKK 20-23 billion remains unchanged, when excluding the provision of approximately DKK 8-11 billion related to Ocean Wind 1. Due to a later timing across its project portfolio and the termination of investments on Ocean Wind 1, Ørsted’s gross investment for 2023 is now expected to amount to DKK 40-44 billion, a reduction of DKK 4 billion.

 

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 + Chief Executive Officer, 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 Ocean Wind 2: https://oceanwindtwo.com/ + Advancing New Jersey’s role in the heart of the American offshore wind industry. Ocean Wind 2 is an 1,148 MW offshore wind farm, owned and developed by Ørsted, the U.S. leader in offshore wind. Located off the coast of southern New Jersey, Ocean Wind 2 will provide clean and reliable energy, local jobs, and infrastructure enhancements to the Garden State – further supporting New Jersey in its effort to realize its vision of becoming a world-class leader in the offshore wind industry.

As a key element in New Jersey’s effort to achieve a clean energy future, Ocean Wind 2 will play a significant role in helping the State reach its goals of installing 7,500 MW of offshore wind capacity by 2035 and 100 percent clean energy by 2050. At 1,148 MW, Ocean Wind 2 will power more than half a million New Jersey homes. Together, Ocean Wind 1, New Jersey’s first offshore wind farm, and Ocean Wind 2 will deliver over 2,200 MW of offshore wind to the Garden State.

 

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.

 

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 Eversource: https://www.eversource.com/content/ + At Eversource, we live in the neighborhoods we serve, working together for a better tomorrow. We’re 9,000 men and women committed to providing safe, reliable and sustainable electric, gas and water service in Massachusetts, Connecticut and New Hampshire. 

Our operations trace their roots back to the middle of the 19th century. Through the decades, many companies have come together to form Eversource, New England’s largest energy delivery company.

Today, we’re proud to provide safe, reliable service to 4.3 million customers. Like our predecessor companies, we’re focused on supporting every one of our communities, to power the possible for New England.

More information on Joe Nolan (President, Chief Executive Officer, Chairman, Eversource): https://www.eversource.com/content/residential/about/investors/corporate-governance/board-of-trustees 

 

 

 

EMR Additional Notes:

  • Impairment:
    • Impairment occurs when a business asset suffers a depreciation in fair market value in excess of the book value of the asset on the company’s financial statements. Under the U.S. generally accepted accounting principles, or GAAP, assets that are considered “impaired” must be recognized as a loss on an income statement.
    • An impaired asset is an asset valued at less than book value or net carrying value. In other words, an impaired asset has a current market value that is less than the value listed on the balance sheet. To account for the loss, the company’s balance sheet must be updated to reflect the asset’s new diminished value.
    • impairment denotes a sudden, irreversible drop in value, whereas depreciation/amortisation reduces the value of the asset over its entire lifetime.

 

  • 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: