Orsted Shares Plunge as Company Warns of $2.3 Billion Hit from U.S. Offshore Wind Portfolio

(Bloomberg) —

Orsted A/S shares plunged the most on record after the renewable energy company warned of impairments of as much as 16 billion Danish kroner ($2.3 billion) to its US portfolio because of supply chain issues and soaring interest rates. 

The drop of as much as 23% was the steepest since the company’s 2016 initial public offering and erased the equivalent of about $7 billion in market value. It’s a further blow to the offshore wind industry struggling with soaring materials costs. 

The company’s Ocean Wind 1, Sunrise Wind, and Revolution Wind projects in the US are being hurt by supplier delays, which could lead to writedowns of up to 5 billion kroner, it said late Tuesday. High interest rates could also add another 5 billion. 

In addition, the developer is still in talks with federal stakeholders to qualify for additional tax credits, which haven’t progressed as expected. If unsuccessful, it could lead to impairments of as much as 6 billion kroner.

“While the bulls could argue many of these issues related to the impairment are already known, the announcement is unlikely to bode well for an already-weakened Orsted share price,” Citigroup Inc. analyst Jenny Ping said in a note Wednesday. “We continue to see a number of challenges to offshore wind,” including affordability and fierce competition. 

Orsted’s troubles are the latest in a series of struggles for the wind-power industry, just as countries around the world demand more of the clean energy technology. Rising supply chain costs have clouded the outlook for some developers’ revenue, with others facing turmoil from critical mechanical issues.

“Further signs of supply chain headwinds on the offshore segment may spur a bigger focus on onshore wind and solar development,” Bloomberg Intelligence analyst Patricio Alvarez said.

Share Decline

Orsted shares are down about 30% this year, trading at their lowest since January 2019. The stock has also weighed on the European Renewable Energy Index this year, while other wind developers such as RWE AG, EDP Renovaveis SA and Vestas Wind Systems A/S dropped on Wednesday as well.

Orsted earlier this month reported a decline in earnings for the second quarter, pressured by weak wind speeds and lower margins in some divisions. Still, it expects its return on capital employed target for the 2023-2030 period at about 14%. 

In another sign of the stressed industry, Swedish developer Vattenfall AB halted a UK project last month as surging costs made it no longer viable. Meanwhile, Siemens Energy AG has tried to delay the delivery of new wind turbines from its 5.X platform amid flaws in its machines.

Orsted said it will continue to press on with US near-term offshore wind projects and work to mitigate supply delays. 

Still, Danske Bank said the impairments “will have no bearing” on earnings before interest, taxes, depreciation and amortization, and it could also also reduce the company’s development capital expenditure budget. 

“Our overall impression from this is that it is only slightly credit negative,” the bank said in a note.

–With assistance from Priscila Azevedo Rocha, Sanne Wass and Paul Jarvis.

© 2023 Bloomberg L.P.

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