US offshore wind writedowns seen soaring with Orsted earnings - Reuters
US offshore wind writedowns seen soaring with Orsted earnings | Reuters
US offshore wind writedowns seen soaring with Orsted earnings
A view of the turbines at Orsted's offshore wind farm near Nysted, Denmark, September 4, 2023. REUTERS/Tom Little/File Photo Acquire Licensing Rights
- Companies
Oct 31 (Reuters) - European energy companies, including Denmark's Orsted (ORSTED.CO), will likely write down more of their U.S. offshore wind investments this week after BP (BP.L) and Equinor (EQNR.OL) booked $840 million in impairments in recent days.
Orsted, the world's largest offshore wind developer, said in August it may see impairments of 16 billion Danish crowns ($2.3 billion) on its U.S. offshore developments due to supply chain problems, soaring interest rates and a lack of new tax credits.
Orsted, which was not immediately available for comment, will post its third quarter earnings on Wednesday.
Soaring costs from rising inflation, interest rate hikes and supply chain delays have cast doubt on plans by U.S. President Joe Biden and several states to use offshore wind to replace fossil fuels in energy production and reduce carbon emissions.
Analysts said Orsted has already warned it will write down at least 5 billion Danish crowns and noted that those impairments could reach as much as 16 billion Danish crowns if interest rates in the U.S. are above a certain level.
"You could say it looks pretty certain that they (Orsted) won't be able to stick to the 5 billion" Danish crowns in impairments, Jacob Pedersen, senior analyst at Sydbank, a Danish bank, told Reuters.
On Tuesday, energy major BP wrote down $540 million in the third quarter on wind projects after officials in New York state rejected a request for better terms to reflect what BP referred to as "inflationary pressures and permitting delays."
Norway's Equinor (EQNR.OL), BP's partner on those New York offshore wind developments, booked a $300 million impairment on the projects on Friday.
BP paid Equinor $1.1 billion in 2020 for a 50% stake in the venture to develop the Empire and Beacon wind projects off New York, which have a combined capacity of 3,300 megawatts (MW), capable of powering about 2 million homes.
Analysts said BP, Equinor and Orsted will likely cancel some contracts to sell power in New York, like other offshore wind developers have already done in Massachusetts and Connecticut.
Orsted has a contract to sell power in New York from its 924-MW Sunrise Wind project off Rhode Island and Massachusetts.
In Massachusetts, two offshore wind developers, SouthCoast Wind and Commonwealth Wind, agreed to pay local utilities to terminate deals that would have delivered around 2,400 MW of energy.
SouthCoast is owned by units of Shell (SHEL.L), which will report earnings on Thursday, and Ocean Winds.
Ocean Winds is owned by units of Portuguese energy company EDP Energias de Portugal (EDP.LS) majority-owned EDP Renováveis (EDPR.LS) and France's ENGIE (ENGIE.PA).
Commonwealth is a unit of Avangrid (AGR.N), which is majority owned by Spanish energy company Iberdrola (IBE.MC).
Avangrid also canceled a contract to sell power in Connecticut from its proposed 804-MW Park City offshore wind farm.
Reporting by Scott DiSavino in New York, Louise Breusch Rasmussen in Copenhagen and Ron Bousso in London; editing by Jonathan Oatis
Our Standards: The Thomson Reuters Trust Principles.
Related Knowledge Center: Offshore wind energy
Over the next decade, U.S. offshore wind power is expected to grow from a single 30-megawatt wind farm off Rhode Island to more than 2,000 MW of capacity along the Atlantic Seaboard. There are contracts for wind power off the coasts of Massachusetts, Connecticut, New York, Maryland, New Jersey, Rhode Island, and Virginia.
The National Renewable Energy Laboratory has estimated the United States has over 4,000 gigawatts (GW) of offshore wind potential, enough to power the country four times over.
The growth in part being spurred by state solicitations, including in New York, where then-Gov. Andrew Cuomo (D) set a commitment of 9,000 MW of offshore wind by 2035, and in Connecticut, where in June 2021, Gov. Ned Lamont (D) signed legislation authorizing the construction of 2,000 MW of offshore wind by 2030.
The offshore development is also being driven by an investment tax credit set to end in December 2019 and is equal to 12 percent of expenditures. U.S. Sens. Susan Collins (R-Maine) and Tom Carper (D-Del.) have introduced a bill to extend the tax credit for up to eight years.
The Interior Department has held eight competitive lease sales that resulted in 15 offshore wind leases over 1.7 million acres that has the potential for 21 GW of capacity. In February 2022, the Bureau of Ocean Energy Management completed a bidding process that realized $4.37 billion for 488,000 acres across six lease areas in federal waters off New York and New Jersey.
Projects have also been proposed off the Southeast coast, off California and Hawaii, and for the Great Lakes.