European Energy Firms: European energy companies, including industry leader Orsted from Denmark, are poised to announce potential write-downs on their U.S. offshore wind investments, following the recent $840 million impairments reported by BP and Equinor. Orsted, a global giant in offshore wind development, had forewarned of impairments totaling 16 billion Danish crowns ($2.3 billion) for its U.S. offshore projects.
These financial setbacks stem from challenges in the supply chain, surging interest rates, and the absence of new tax credits. The company is set to release its third-quarter earnings on Wednesday.
Soaring costs attributed to inflation, interest rate hikes, and supply chain disruptions have raised questions about the feasibility of replacing fossil fuels with offshore wind energy, a goal championed by U.S. President Joe Biden and several states.
Analysts suggest that Orsted may surpass its initial estimate of 5 billion Danish crowns in impairments, signaling the severity of the situation. Jacob Pedersen, a senior analyst at Danish bank Sydbank, noted that it seems unlikely Orsted will adhere to the 5 billion Danish crowns estimate.
BP recently announced a $540 million write-down in the third quarter for wind projects after facing resistance from New York officials, who rejected their request for better terms, citing inflationary pressures and permitting delays. Equinor, BP’s partner in New York’s offshore wind developments, also reported a $300 million impairment on the projects.
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It is anticipated that BP, Equinor, and Orsted will consider canceling some power contracts in New York, mirroring similar actions taken by offshore wind developers in Massachusetts and Connecticut.
Orsted holds a power contract in New York through its 924-MW Sunrise Wind project off Rhode Island and Massachusetts. In Massachusetts, two offshore wind developers, South Coast Wind and Commonwealth Wind, have agreed to pay local utilities to terminate agreements that would have delivered approximately 2,400 MW of energy.
South Coast Wind is owned by units of Shell, which will be releasing its earnings on Thursday, and Ocean Winds. Ocean Winds is owned by units of Portuguese energy company EDP Energias de Portugal, EDP Renovaveis, and France’s ENGIE. Commonwealth Wind is a subsidiary of Avangrid, primarily owned by Spanish energy company Iberdrola.
Avangrid also canceled a power contract in Connecticut for its proposed 804-MW Park City offshore wind farm. According to a spokesperson from Avangrid, they incurred losses of $48 million and $16 million before taxes to terminate contracts for Commonwealth Wind and Park City Wind, avoiding billions in write-offs and preserving the significant value of their lease areas. Avangrid still plans to deliver the first power from its Vineyard Wind 1 project in 2023.
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