Orsted has revealed that it could experience a DKK16bn (€2140m) impairment on its US offshore wind portfolio.
As part of the continued maturation of and a pre-final investment decision (FID) review of its near-term US offshore development projects, Orsted has assessed the aggregate adverse impacts.
These relate to the supply chain, lack of favourable progress in Investment Tax Credit (ITC) guidance, and increased interest rates, which affect its US portfolio.
Its Ocean Wind 1, Sunrise Wind, and Revolution Wind projects are adversely impacted by a handful of supplier delays, the developer reported.
Orsted has concluded that there is a continuously increasing risk in these suppliers’ ability to deliver on their commitments and contracted schedules.
This could create knock-on effects requiring future remobilizations to finish installation, as well as potentially delayed revenue, extra costs, and other business case implications, it said.
These impacts will lead to impairments of up to DKK5bn, assuming no further adverse developments in the supply chains on these projects, Orsted added.
In addition, the developer’s continued discussions with senior federal stakeholders about additional ITC qualifications for Ocean Wind 1 and Sunrise Wind are not progressing as it previously expected, Orsted said.
The developer is continuing to engage in discussions with federal stakeholders to qualify for additional tax credits beyond 30%.
If these efforts prove unsuccessful, it could lead to impairments of up to DKK6bn, the developer warned.
The level of a possible impairment will be decided based on a probability weighted assessment of the likelihood of obtaining the additional ITCs, it added.
Furthermore, the US long-dated interest rates have increased, which affects Orsted’s US offshore projects and certain onshore projects.
If the interest rates remain at the current level by the end of third quarter, it will cause impairments of approximately DKK5bn, Orsted said.
The impairments relating to Ocean Wind 1, Sunrise Wind, Revolution Wind, South Fork Wind, Block Island Wind Farm, and several US onshore projects will be recognised in our interim report for the first nine months of 2023, it added.
The developer said in the statement: “While Orsted’s near-term US offshore wind development portfolio does not meet our value creation target on a lifecycle basis, we remain convinced that the value-creation of the portfolio will be within 150 to 300 basis points spread-to-WACC on a forward-looking basis.”
Adjusted for the anticipated impairments, Orsted maintains a ROCE target for the period 2023-2030 of approximately 14%.
The developer added that it will continue to progress the US near-term offshore wind projects including obtaining final federal and local permits, working with suppliers to mitigate delays and continuing our dialogue with stakeholders to try to qualify for at least 40% ITCs on all projects.
Orsted will work towards taking FID on Ocean Wind 1, Sunrise Wind, and Revolution Wind projects towards the end of 2023 or in early 2024.
Pending FID, Orsted now expects to commission Ocean Wind 1 in 2026.
David Hardy, executive vice president and chief executive of region Americas at Orsted, said: “The US offshore wind market remains attractive in the long term.
“We will continue to work with our stakeholders to explore all options to improve our near-term projects including continued dialogue about ITC qualification, OREC adjustments, and other business case levers.”
The information provided in this announcement does not change Orsted’s previous EBITDA guidance for the financial year of 2023 or the announced expected investment level for 2023.