Ørsted halts Ocean Wind 1 and 2, takes FID on Revolution Wind, recognises US$2.7Bn in impairments

The company is cancelling development of the Ocean Wind 1 and 2 projects (which have a combined capacity of 2.2 GW), but has taken a final investment decision on the 704-MW Revolution Wind project it is developing with Eversource, for which offshore construction will start in 2024.

Announcing interim results for the first nine months of 2023, the company said decisions are ‘part of an ongoing review of its US offshore wind portfolio.’ In an announcement to the US market, Ørsted group EVP and chief executive Americas David Hardy said, “Macroeconomic factors have changed dramatically over a short period of time. As a result, we have no choice but to cease development of Ocean Wind 1 and Ocean Wind 2.

“We are extremely disappointed to have to take this decision, particularly because New Jersey is poised to be a US and global hub for offshore wind energy. I want to thank Governor Murphy and NJ state and local leaders who helped support these projects and continue to lead the region in developing American renewable energy and jobs.”

Since first announcing an impairment on the projects in September, said the developer, the cancelled projects “have experienced further negative developments from adverse impacts relating to supply chains, increased interest rates, and the lack of an Offshore Renewable Energy Certificate adjustment on another project, Sunrise Wind. The majority of the impairments relate to Ocean Wind 1.” 

Ørsted said the decision to cease the development of Ocean Wind 1 and 2 was a consequence of additional supplier delays further impacting the project schedule and leading to an additional significant project delay. 

In addition, Ørsted has updated its view on certain assumptions, including tax credit monetization and the timing and likelihood of final construction permits. Increases to long-dated US interest rates also adversely affected the business case for the projects.

Ørsted  group president and chief executive Mads Nipper said, “We are extremely disappointed to announce that we are ceasing the development of Ocean Wind 1 and 2.

“We firmly believe the US needs offshore wind to achieve its carbon emissions reduction ambition, and we remain committed to the US renewables market and truly value the efforts by the US government to support the build-up of the US offshore wind industry. 

“However, the significant adverse developments from supply chain challenges, leading to delays in the project schedule, and rising interest rates have led us to this decision, and we will now assess the best way to preserve value while we cease development of the projects. At the same time, with an attractive forward-looking value creation, we progress the Revolution Wind project into the construction phase.”

US$2.7Bn in impairments and other provisions the company has made as a result of the cancelled projects will have an impact on Ørsted’s capital structure, so the company is taking measures to support its capital structure and long-term commitment to its credit rating. In addition to cost-savings initiatives, measures include working capital improvements such as supply chain financing, prioritisation of development activities, portfolio rationalisation, and other actions aimed at strengthening the company’s capital structure.

As part of an ongoing review of its US portfolio, Ørsted will assess the potential implications for its current long-term strategic build-out ambition and financial targets. The company said it plans to update the market no later than in its Q4 2023 results announcement, including, if relevant, potential implications to its long-term strategic ambition and financial targets.

Ørsted said it welcomed a request for information from the New York State Energy Research and Development Authority for information on an accelerated solicitation for offshore wind capacity, which could provide an opportunity to rebid its Sunrise Wind project, which Ørsted owns in a 50/50 partnership with Eversource, at a price level that reflects current component and financing costs. The company will await the conditions of the request for proposal to determine whether to rebid or not. 

Ørsted continues to reconfigure another project, Skipjack Wind, on which there has been minimal project spend. It expects to have more clarity on its path forward in the Q4 2023 report as Ørsted continues discussions with stakeholders in Maryland.