Orsted foresees up to $2.3bn impairment on US offshore wind projects
Danish developer cautions supplier delays, lack of progress in securing additional tax credits for two projects, and rising financing costs are contributing to challenges
Orsted warned Tuesday that it anticipated up to DKr5bn ($730m) impairments on its near-term US offshore wind portfolio due to “supplier delays”, which could rise another DKr6bn if certain projects don't receive federal investment tax credit (ITC) adders, and a further DKr5bn on rising financing costs. Total impairment could reach $2.34bn.
Orsted has said it concluded that there is “a continuously increasing risk in these suppliers’ ability to deliver on their commitments and contracted schedules.”
It added this could create “knock-on effects requiring future remobilisations to finish installation, as well as potentially delayed revenue, extra costs, and other business case implications.”
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David Hardy, CEO of the Americas region at Orsted, 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 including continued dialogue about ITC qualification, OREC [offshore renewable energy credit] adjustments, and other business case levers,” he added.
The company said in a statement the anticipated impairments were part of a review of its near-term US offshore developments – the 1.1GW Ocean Wind 1.92G Sunrise, and 704MW Revolution projects – and it was working towards taking a final investment decision (FID) “towards the end of 2023 or in early 2024”.
The company now expects to commission Ocean Wind 1 in 2026.
Orsted acknowledged its near-term US portfolio does not meet the company's value creation target on a lifecycle basis.
A key issue is the company's lack of progress in qualifying for tax credits.
The US landmark Inflation Reduction Act (IRA) offers ITC up to 30% assuming domestic content and prevailing wage criteria are met.
Projects can receive a total ITC of 50% with 10% adders each for meeting domestic content thresholds and for locating facilities in fossil-fuel-powered communities or on brownfield sites.
Orsted said its ongoing discussions with “senior federal stakeholders about additional ITC qualifications for Ocean Wind 1 and Sunrise Wind are not progressing as we previously expected.”
“If these efforts prove unsuccessful, it could lead to impairments of up to DKr6bn,” the company said.
Orsted cited further risk from high interest rates, which affects its offshore as well as certain onshore projects.
“If the interest rates remain at the current level by the end of the third quarter, it will cause impairments of [another] approximately DKr5bn,” the company said.
That would push overall impairments to DKr16bn, or the equivalent of $2.3bn.
The company will continue to progress its projects, including obtaining final federal and local permits, mitigating supplier delays, and continuing our dialogue with stakeholders to try to qualify for at least 40% ITCs on all projects, the statement said.
“We remain convinced that the value-creation of the portfolio will be within 150 to 300 basis points spread-to-WACC [weighted average cost of capital] on a forward-looking basis,” the developer said.
Adjusted for the anticipated impairments, Orsted added that it maintains a return on capital employed target for the period 2023-2030 of approximately 14%.
Orsted likewise confirmed its previous EBITDA guidance for the financial year of 2023 or the announced expected investment level remains unchanged.