Ørsted: energy group struggles to divine which way wind’s blowing

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Wind energy offers clean, renewable power for decades to come. The catch is that it may not be profitable. That is what Ørsted, the Danish wind power generator, told the market on Tuesday evening. Its US projects off the Atlantic coast will require impairment charges of up to DKr16bn ($2.3bn). The share price collapsed by a fifth on Wednesday.

Ørsted has a bad habit of springing negative surprises concerning everything from low wind speeds to power price hedging. That suggests there may be a foresight deficit in the C-suite.

This time, chief executive Mads Nipper blamed supplier delays (potentially costing DKr5bn), higher interest rates (DKr5bn) and lower than expected US investment tax credits (DKr6bn).

This month he moaned about a lack of economic offshore wind projects. Despite moderating inflation, input costs for steel and copper remain about 40 per cent above those from 2019, says Citi.

At Ørsted’s investor day in June, Nipper anticipated receiving the full 40 per cent investment tax credit on applicable US project investments. This assumption has now been cut to 30 per cent. Perversely, the US Inflation Reduction Act gets the rap, for local content requirements. Yet the US Treasury had laid these out weeks before.

Considering US wind projects will account for less than 15 per cent of Ørsted’s 205 gigawatts of total offshore capacity by 2030, these northeastern Atlantic projects have caused more than their share of headaches. By last year, Ørsted had already impaired its offshore New York Sunrise project by DKr2.5bn.

At what point might Ørsted give up on its US projects? Having acquired Deepwater Wind from DE Shaw back in 2018 for $510mn, it has already sunk a big bet. Ørsted has yet to give a final investment decision on its US projects. These should occur late this year, or early 2024.

Much damage is already priced in. The worst-case scenario is that impairments account for under 7 per cent of market cap versus a drop of three times that on the day.

The share price has gone nowhere since late 2018. Renewable energy still has a great future. But investors should consider vehicles other than Ørsted, given its mis-steps.