By Paul Homewood
Orsted, the Danish owned wind power company, has been in deep trouble for a while now, as the combination of rising costs, the end of cheap money and shrinking subsidies have wrecked profitability.
Billions in capital write downs have already occurred, but now the cash is drying up:
Today, Ørsted’s Board of Directors approved adjustments to the company’s business plan towards a focused capital allocation to strengthen the capital structure. The company will prioritise the most value-accretive growth opportunities through a self-funded investment programme.
During 2024, Ørsted delivered full-year results in line with expectations, reaching an EBITDA excluding new partnerships and cancellation fees of DKK 24.8 billion. In addition, commissioning of 2.4 GW of renewable capacity took place, 3.5 GW of offshore wind capacity was awarded in the UK, and the final investment decision on the offshore wind farm Baltica 2 in Poland was made last week. All of which contribute to the strategic progress of the company.
Despite delivering full-year results in line with expectations and the strategic progress, Ørsted has experienced challenges, especially related to the US offshore wind portfolio, which have led to further pressure on our credit metric. This development, in combination with the wider renewable industry challenges, has led Ørsted to reduce its investment programme towards 2030 by around 25 % compared to its previous strategic ambition on a like-for-like basis. The reduced investment programme is in line with our commitment to ensure a capital structure that can support a solid investment grade credit rating
We’ll reduce our investment programme towards 2030 through a stricter, more value-focused approach to capital allocation. We do this to ensure a stronger balance sheet, supporting a solid investment grade rating, and to ensure that we only invest our capital in the most financially attractive opportunities.
“Our number one priority throughout the next three years will be to deliver on our committed 8.4 GW offshore wind construction programme, which will almost double our installed offshore wind capacity. The market remains challenging, but delivering on this programme will solidify our position as the undisputed global leader in offshore wind.”
These adjustments will not affect the execution of the 9 GW of renewable projects that Ørsted is currently constructing. The construction portfolio brings line of sight to an expansion of renewable capacity from 18 GW to more than 27 GW.
The previous ambition for installed renewable capacity of 35-38 GW by 2030 and the targeted EBITDA (excluding new partnerships) of approx. DKK 39-43 billion in 2030 have been discontinued.
In layman’s language, they are carrying on with 9 GW of projects already under construction, given that it would be far too costly to back out now.
But that’s it! The other 11 GW of new capacity planned has gone by the wayside.
This is necessary for two reasons:
1) They do not have the cash to invest
2) The new projects would not be profitable, given the current state of the market.
Orsted is the leading offshore wind developer in the UK, and probably the world.
In last year’s CfD auction, AR6 , Orsted won a contract to build the offshore wind farm Hornsea Project Four, with a capacity of 2400 MW.
It has however not yet been given the Final Investment Decision by Orsted. As construction has not started yet or even been approved, it is to be presumed that it will be one of the projects on the chopping block.
This would leave a massive hole in Ed Miliband’s plans to triple offshore wind capacity by 2030.
AR6 brought in 3363 MW of offshore wind, so three quarters looks like disappearing just like that.
Moreover it seems impossible that Orsted will bid at the next allocation round, AR7, and there appear to be no other major players willing to step up.
ScottishPower Renewables have already stated that East Anglia Two, which won the other AR6 contract, will be their last in that part of the North Sea. And Vattenfall pulled out of their CfD for the 1400 MW Norfolk Boreas in 2023.
The days of easy money for offshore wind developers, made possible by obscene subsidies are long gone. It already appear that AR7 is running well behind schedule, which suggests that there is a lack of interest amongst developers for the prices on offer.
My guess is that Miliband will be forced to substantially raise the strike prices if he wants more capacity.