Shares in Danish renewable energy company Orsted plummeted by 23% following a warning of impairments amounting to 16 billion Danish kroner (€2.1 billion) in its US portfolio. The company attributed these impairments to supply chain issues and soaring interest rates. Orsted is well-known in Ireland as the owner of nearly 20 wind and solar farms across the country. It had previously announced a partnership with ESB to develop offshore projects. In the US, Orsted’s Ocean Wind 1, Sunrise Wind, and Revolution Wind projects are being negatively impacted by supplier delays, potentially resulting in writedowns of up to 5 billion kroner. Additionally, high interest rates could add another 5 billion kroner to the impairments.
This development adds to the challenges faced by the wind power industry, which is under increasing pressure to meet the growing demand for clean energy technology worldwide. Rising supply chain costs have cast a shadow over revenue outlook for some developers, while others are grappling with mechanical issues. Orsted’s collaboration with ESB in Ireland, announced in June, includes working on offshore wind farms and renewable hydrogen projects to support the country’s 2030 climate change goals. Furthermore, Orsted recently secured a contract to supply Meta, the owner of Facebook, with wind energy from one of its farms in Ireland.
Citigroup analyst Jenny Ping commented on the announcement, stating that while some may argue that many of the issues related to the impairments in the US were already known, the news is unlikely to have a positive impact on Orsted’s already weakened share price. She also highlighted the challenges facing the offshore wind sector, such as affordability and intense competition. Bloomberg Intelligence analyst Patricio Alvarez suggested that further signs of supply chain difficulties in offshore wind could lead to a greater focus on onshore wind and solar development.
Orsted’s shares have fallen by approximately 30% this year and are currently trading at their lowest level since January 2019. In its second-quarter report, the company reported a decline in earnings due to weak wind speeds and lower margins in certain divisions. Nevertheless, Orsted maintains its target of achieving a return on capital employed of around 14% for the period between 2023 and 2030.
The wind power industry continues to face challenges, as demonstrated by Swedish developer Vattenfall’s decision to halt a UK project last month due to escalating costs. Siemens Energy has also encountered issues with its wind turbines from the 5.X platform, resulting in attempts to delay their delivery. Orsted, however, remains committed to advancing its near-term offshore wind projects in the US and taking measures to mitigate supply delays. Danske Bank stated that the impairments will not impact earnings before interest, taxes, depreciation, and amortization and could also lead to a reduction in the company’s development capital expenditure budget. The bank assessed the overall impact of the impairments as only slightly credit negative.
In summary, Orsted’s warning of impairments in its US portfolio has led to a significant drop in its share price. The wind power industry as a whole is facing challenges, including rising supply chain costs and mechanical issues. Orsted’s partnership with ESB in Ireland and its contract with Meta demonstrate its commitment to renewable energy projects. However, the company’s shares have been on a downward trend this year, and it remains to be seen how it will navigate these obstacles in the future.
