Several European energy companies, including Denmark's Orsted, are expected to announce additional write-downs on their U.S. offshore wind investments, following recent impairments by BP and Equinor totaling $840 million. The challenges faced by these energy firms have raised concerns about the feasibility of U.S. offshore wind projects and their role in reducing carbon emissions and replacing fossil fuels.
In August, Orsted, the world's largest offshore wind developer, signaled that it might incur impairments of up to 16 billion Danish crowns (approximately $2.3 billion) on its U.S. offshore developments. These impairments were attributed to supply chain disruptions, surging interest rates, and the absence of new tax credits.
Orsted, which is set to release its third-quarter earnings, had previously cautioned that write-downs could reach as high as 16 billion Danish crowns, especially if U.S. interest rates exceeded a specific threshold.
Jacob Pedersen, a senior analyst at Danish bank Sydbank, remarked, “You could say it looks pretty certain that they (Orsted) won't be able to stick to the 5 billion Danish crowns in impairments.”
BP recently recorded a $540 million write-down in the third quarter related to wind projects, citing inflationary pressures and permitting delays, after New York state rejected a request for improved terms. Equinor, BP's partner in the New York offshore wind initiatives, also reported a $300 million impairment on these projects.
The partnership between BP and Equinor aimed to develop the Empire and Beacon wind projects off New York, with a combined capacity of 3,300 megawatts, capable of powering approximately 2 million homes.
Industry analysts anticipate that BP, Equinor, and Orsted may cancel certain power sale contracts in New York, similar to actions taken by other offshore wind developers in Massachusetts and Connecticut. Orsted holds a power sale contract in New York for its 924-megawatt Sunrise Wind project off Rhode Island and Massachusetts.
In Massachusetts, two offshore wind developers, SouthCoast Wind and Commonwealth Wind, have agreed to terminate agreements with local utilities, covering around 2,400 megawatts of energy.
SouthCoast Wind is jointly owned by units of Shell, set to report earnings on Thursday, and Ocean Winds, which is owned by units of Portuguese energy firm EDP Energias de Portugal, primarily owned by EDP Renovaveis, and France's ENGIE.
Commonwealth Wind is a subsidiary of Avangrid, mainly owned by Spanish energy company Iberdrola. Avangrid also canceled a power sale contract in Connecticut related to its proposed 804-megawatt Park City offshore wind farm.
An Avangrid spokesperson emphasized that the company's cancellations had occurred before making significant investments in the projects, resulting in the loss of guarantees amounting to $48 million and $16 million before taxes. The company still intends to deliver the first power from its Vineyard Wind 1 project in 2023, preserving the substantial value of its lease areas.
