Wind Power Write-Downs Cast Shadow Over Industry Outlook

A wave of impairments is sweeping through the U.S. wind-energy sector amid high interest rates, inflation and supply-chain woes, forcing developers to put off projects and casting doubts over the industry’s outlook.

Governments around the world have set ambitious targets to increase the share of renewables in their energy mixes, but their plans are now under pressure as wind developers face a surge in financing costs. 

Orsted, BP and Equinor have collectively written off $4.8 billion against U.S. offshore wind projects in recent days.

Danish renewable-energy company Orsted said Tuesday that it booked an impairment charge of 28.4 billion Danish kroner, equivalent to $4.02 billion, against its U.S. offshore portfolio and abandoned the development of two wind projects off the coast of New Jersey—Ocean Wind 1 and 2—due to spiraling costs and supplier delays. Orsted previously flagged increasing risks for its projects in the country, citing the lack of favorable progress on tax credits.

“The significant adverse developments from supply-chain challenges, leading to delays in the project schedule, and rising interest rates have led us to this decision,” said Orsted Chief Executive Mads Nipper.

The decision came a week before legislative elections in New Jersey, where wind turbines have become a top target for Republicans against Democratic Gov. Phil Murphy’s plan to have 100% of the state’s power coming from renewables by 2035.

“The industry isn’t in a good shape,” said Martin Tessier, Stifel’s vice president of equity research for utilities and renewables. “I think we’ll see a softening of long-term targets…and less projects will be developed in the long term.”

Project owners usually sign long-term deals outlining terms to sell electricity or secure subsidies before construction starts. Some are now lamenting that these terms don’t reflect increased costs and say their projects aren’t viable anymore.

Earlier this week, BP booked a $540 million pretax impairment charge on three wind projects off the coast of New York after regulators rejected the company’s request to renegotiate power-purchase terms to reflect inflationary pressures and permitting delays. Equinor, BP’s partner on the Empire Wind and Beacon Wind projects, booked an impairment of around $300 million on its U.S. portfolio. The companies said they are assessing the impact of the regulators’ decision on their future development plans.

Other projects have been canceled. Earlier in October, Iberdrola subsidiary Avangrid scrapped power-purchase agreements for an 804-megawatt wind-farm project known as Park City Wind in Connecticut due to financial challenges. SouthCoast Wind—a joint venture between Shell New Energies US and Ocean Winds North America—said it would terminate PPAs for a planned project in Massachusetts due to a significant increase in projected capital expenditures and finance costs. Ocean Winds was created by Portugal’s EDP Renovaveis and France’s Engie.

Swedish developer Vattenfall said earlier this year that it saw project costs rising up to 40% and it booked an impairment for halting the development of the Norfolk Boreas wind farm in the U.K.

Germany’s Siemens Energy warned of worse-than-expected 2024 losses in its wind-turbine business as it works through quality issues and ramp-up challenges.

“The economics of wind are proving more difficult thanks to higher costs of capital and higher interest rates,” said Russ Mould, AJ Bell’s investment director, in a statement. “The laws of physics are coming into play with regard to how the wind turbines are made. They require large amounts of concrete, steel, rare-earth-based magnets and lubricants to ensure they work reliably in potentially hostile environments, but the costs are going up, thanks to inflation, and this is taking its toll on manufacturers.”

However, some projects are still moving forward. Utility Dominion Energy on Tuesday received a key federal approval for its 2.6-gigawatt offshore wind project in Virginia. And Orsted confirmed its final investment decision into Revolution Wind, an offshore 704-megawatt project in Connecticut and Rhode Island. Orsted’s CEO also told analysts the company has confidence in its portfolio of European and Asia Pacific construction and development properties.

In Europe, policy makers recently released an action plan to address the sector’s mounting challenges, saying they are working to ensure faster permitting, improved auction criteria, easier access to finance and guarantees, as well as a more competitive international environment. The European Union’s plan was welcomed as “a game-changer for the industry” by trade group WindEurope, which called for action earlier this year amid high costs, long permitting processes and rising competition from Chinese manufacturers.

Dominic Chopping contributed to this article.

Write to Giulia Petroni at [email protected]