Denmark’s Ørsted has cancelled two big offshore windfarm projects in the US at a cost of more than £3bn amid surging costs facing the global wind industry.
Shares in the world’s biggest wind power company fell 25% on Wednesday after it told investors it had no choice but to take a 28.4bn Danish kroner (£3.3bn) impairment charge and stop the developments off the New Jersey coast.
Ørsted said it had cancelled the Ocean Wind I and II schemes because of high inflation, rising interest rates and supply chain bottlenecks.
The company’s chief executive, Mads Nipper, told journalists he was extremely disappointed but it was the sensible thing to do after a sharp escalation in costs.
The decision will be a blow to Joe Biden’s plan to roll out 30GW of offshore wind capacity in US waters before 2030, and underlines the deepening financial woes of the sector worldwide.
It has also cast doubt on Ørsted’s plans to develop a third phase of the Hornsea project in British waters, which would be the single largest windfarm in the world and would play a large role in the UK’s ambition to grow its offshore wind capacity five-fold to 50GW by the end of the decade.
Nipper added that there was no doubt that the global offshore wind industry found itself in a “perfect storm” of sky-rocketing costs, caused by high inflation and rising interest rates. The industry’s woes have also been compounded by problems in the global offshore wind supply chain.
“This industry does not need to be in a crisis,” Nipper said. “We are of the opinion that it all hinges on being realistic about [what] power prices need to be.”
Many global offshore wind developers face significant financial headwinds after agreeing government subsidy agreements at record low costs before the recent surge in the price of raw materials and interest rates drove project costs higher.
On Tuesday, BP revealed a $540m (£445m) writedown on two projects off the coast of New York because of higher-than-expected costs.
The oil company’s head of low carbon energy, Anja-Isabel Dotzenrath, addressed delegates at a London conference hours after Ørsted cancelled its US projects, saying that the US offshore wind industry was fundamentally broken because government policies were not keeping up with the sector’s rapid growth.
“The way the policy works, the supply chain, the permitting, is not catching up with the growth of this sector,” she told the Financial Times energy transition summit. “There’s a fundamental reset needed in permitting, security of permitting … and how the sector is supposed to grow.”
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In the UK, Sweden’s Vattenfall has scrapped plans for a giant offshore windfarm off the Norfolk coast because rising costs meant it was no longer profitable. The company won a government contract to build the Norfolk Boreas project after bidding a record low price of £37.35 a megawatt hour (MWh) for the electricity generated.
Anna Borg, Vattenfall’s chief executive, said it was “so obvious to everyone that the situation has changed dramatically since last year”, meaning the price would now need to be significantly higher to make financial sense.
Ørsted said this year that its Hornsea 3 offshore wind project, which also won a contract for £37.35/MWh, was at risk unless the UK government agreed to increase the UK’s support for the project. The company plans to make a final investment decision before the end of the year.
“We have an ongoing dialogue with the UK government and a constructive one about what can help and support all our projects, but specifically Hornsea 3,” Nipper said. “All options are still open and we are looking at all levers to make this project investable.”
Ørsted said it would go ahead with one of its US offshore projects, Revolution Wind, which it expected to complete in 2025. “We firmly believe the US needs offshore wind to achieve its carbon emissions reduction ambition,” Nipper said.
