Orsted, the Danish energy giant developing two offshore wind projects for Long Island, saw its stock price plummet nearly 25% on Wednesday after it announced a series of “adverse impacts” tied to its U.S. wind farm plans that could lead to delays, cost increases and even the potential of “walking away” from some.
The company cited rising interest rates, supplier delays and prolonged talks with state and federal regulators in securing subsidies and contract changes for the projects, in announcing that it would take “impairment” charges — reductions in the value of assets — of up to $732 million in the short term, and cumulatively up to $2.3 billion, depending on market conditions and other factors.
In a conference call Wednesday, Orsted chief executive Mads Nipper broached the possibility that the company could decide not to pursue projects if pending "final investment decisions" for the projects prove unfeasible.
“And as any decision, as we mature towards final investment decisions, if the walkaway scenario is an economical, rational decision for us, then this remains a real scenario for us, as an alternative to actually taking the final investment decision,” Nipper said, according to a transcript of his remarks provided by Orsted.
Orsted spokeswoman Stephanie Francoeur, in a statement, said the company will make financial investment decisions about Sunrise Wind for Long Island, Ocean Wind 1 for New Jersey and Revolution Wind for Connecticut and Rhode Island near the end of this year or early next.
“The U.S. offshore wind industry remains attractive in the long term, and we are continuing to advance our projects,” she noted.
Newsday has reported the company, with its partner Eversource, this summer began preliminary work to build an underground cable for Sunrise Wind in Brookhaven Town. Orsted has said it expected Sunrise to be completed and producing energy by the end of 2025, while Eversource has said it is seeking to sell off its U.S. offshore wind assets.
Orsted, in a corporate statement Wednesday that shaved nearly 25% from the company’s Copenhagen-traded shares, said it is facing a “continually increasing risk” that suppliers won’t be able to meet prior commitments and contracted schedules for offshore wind-farm materials for Sunrise Wind, Ocean Wind 1 and Revolution Wind.
Further, Orsted said, the risks “could create knock-on effects requiring future remobilizations to finish installation” of the projects, which are slated for completion in the next several years. The impacts also could delay revenue the company had expected, while increasing costs and other unspecified “complications” Orsted said.
In March, Brookhaven inked an agreement with Sunrise Wind that would provide the town with more than $135 million in payments over 25 years when Sunrise Wind is producing power, which would be enough energy for more than 600,000 homes. The Brookhaven Industrial Development Agency, meanwhile, has committed to more than $90 million in tax breaks and other incentives for the land-based construction project, which consists chiefly of a 17½-mile cable and substation.
Kevin Molloy, chief of staff for Brookhaven Town supervisor Ed Romaine, said the town hasn’t spoken to Orsted about the latest financial news or its impact on the project.
The other major problem impacting the U.S. projects, Orsted said, was delays in securing additional government subsidies for the projects, which are already eligible for a 30% investment tax credit. They also could be eligible for additional federal subsidies of up to 20% of the project costs if they use all U.S. steel and connect to the electric grid in ways that benefit communities impacted by the energy transition.
Failure to negotiate those additional subsidies could lead to another impairment charge of up to $879 million, the company said.
Spokespersons for the U.S. Bureau of Ocean Energy Management, which is administering the offshore wind projects in federal waters, didn't reply to a request for comment. A spokeswoman for the New York State Energy Research and Development Authority, which awarded the contract for Sunrise Wind in 2019, said the agency is "fully aware of the macroeconomic issues and associated project impacts as they were raised by Sunrise Wind in their petition filed with the Public Service Commission on June 6, 2023.” The petition seeks an adjustment in the originally contracted price for energy from the farm to reflect increased costs.
Orsted's financial picture has also been beset by rising U.S. interest rates, which the company said could lead to another $732 million in charges if current rates are still in place by the third quarter.
Any potential impairment charges will be recognized in the company’s third-quarter report, which would include not just the three pending projects, but also South Fork Wind, which largely completed land-based construction in East Hampton and is working on offshore construction, and the Block Island Wind Farm, which is already in operation, as well as certain onshore projects, Orsted said.
LIPA, which is contracted to receive the 130 megawatts of power from the South Fork project, declined to comment on the Orsted financial announcement, but said it expects the South Fork Wind Farm to be in service by the end of this year.