Investing.com -- Ørsted (CSE:ORSTED) shares plummeted over 16% on Tuesday after the company announced a DKK 12.1 billion impairment charge due to challenges in its U.S. offshore wind projects.
Rising financing costs, devalued seabed leases, and execution hurdles, particularly at the Sunrise Wind project, contributed to this loss.
“The Sunrise Wind impairment is particularly disappointing as it further exemplifies the execution risks within US offshore wind & will be unhelpful for the case for US offshore wind development,” said analysts at Jefferies in a note.
The company’s 2024 earnings before interest, taxes, depreciation, and amortization, excluding new partnership agreements and cancellation fees, came in at DKK 24.8 billion, aligning with its most recent guidance.
Despite meeting expectations, the impairments have raised concerns over Ørsted's U.S. offshore wind ambitions and the mounting pressures in the sector.
Ørsted attributed a major portion of the impairment to the Sunrise Wind project, citing a congested construction schedule and escalating costs for critical components, notably monopile foundations.
“The impairment of DKK12.1bn is 9% of Orsted's market capitalisation (at last close), although we expect that some of this is already partly priced in, especially on the interest rate impairments,” Jefferies added.
The project, the first U.S. offshore wind farm to utilize an HVDC system, has been delayed, with commissioning now expected in the second half of 2027.
The delays stem from supply chain constraints, increased costs, and challenges related to construction and offshore installation work.
Ørsted said the cost of maintaining fabrication and installation schedules for Sunrise Wind had risen significantly, while learnings from its Revolution Wind project had also led to reassessments of installation timelines.
Ørsted acknowledged that the Sunrise Wind project incurred a DKK 4.3 billion impairment due to a combination of project-specific challenges and broader cost pressures.
Rising U.S. long-term interest rates, a 75-basis-point increase in the fourth quarter, increased Ørsted's cost of capital. This led to a DKK 4.3 billion impairment across its U.S. offshore wind projects.
A reassessment of seabed leases off the coasts of New Jersey, Maryland, and Delaware resulted in a DKK 3.5 billion impairment.
Ørsted attributed this to market uncertainties, lower valuations for offshore wind sites, and a reassessment of their long-term strategic value.