Blown off course, turbine giant Orsted seeks second wind

By AFP

December 12, 2024

Orsted was dealt a $4 billion blow last year when it cancelled wind farm projects in the United States - Copyright AFP PASCAL PAVANI
Camille BAS-WOHLERT

Long dependent on fossil fuels before emerging a champion of offshore wind power, Danish company Orsted is now struggling to restore its business after dropping several major projects.

Orsted was dealt a $4 billion blow last year when it cancelled wind farm projects in the United States, a crucial market for the group.

The return of Donald Trump, who dislikes wind power, to the White House in January could prove another challenge for the company.

Orsted recently announced it was withdrawing from the Danish government’s “Green Fuels for Denmark” project, and it has asked shareholders to share the burden and suspended dividends until the 2026 financial year.

“A few years ago, they had the ambition of being a major green actor but now we don’t hear that they want to change the world,” climate editor Jakob Martini of business newspaper Finans told AFP.

Orsted is seeking to refocus on offshore wind and “earn money from that core business”, said Martini, who has been following the sector for several years.

Supply chain disruptions, high interest rates, rising material costs, falling electricity prices and political uncertainties have all rocked Orsted.



– US headwinds –



Orsted was once considered a success story.

In less than a decade — from 2010 to 2019 — it went from a traditional energy company that relied on fossil fuels for energy production to instead have 86 percent come from renewable sources.

“They won projects that created a lot of value,” Tancrede Fulop, an analyst at Morningstar, told AFP.

It was the first company to invest massively in offshore wind power in the United States, securing fixed-price projects in a low-rate environment.

“With Covid, the acceleration of the energy transition, interest rates kept at zero and the election of (US President Joe) Biden, they benefitted from a favourable bubble,” Fulop said.

But “in the United States, which is a new market and therefore more risky, they may have bitten off more than they can chew,” he added.

Central banks in the United States and Europe started raising interest rates in 2022 efforts to tame inflation, and only began to lower them this year.

Martini said that Orsted “lacked foresight” when it bid on huge offshore projects in the United States “without hedging against high interest rates”.

When abandoning the Ocean Wind 1 and 2 projects, two wind farms that were due to be installed off the coast of New Jersey, the group was also forced to reimburse its suppliers.

“It was a colossal cancellation. It completely wiped them out,” Fulop said.

Now it faces more uncertainty with Trump’s return.

“What Trump hates most is offshore wind power, but the two projects which Orsted is involved in, Revolution Wind and Sunrise Wind, have received federal approval, so Trump can’t block them,” Fulop said.

In any case, the day after his re-election, Orsted shares, which have lost 70 percent of their value since the end of 2021, fell by over 12 percent.

“There are a lot of concerns linked to this election when Orsted still hasn’t recovered from the wounds of 2023,” said Jacob Petersen, an analyst at Sydbank.

“Things will be better when Trump is in charge and we know what he wants to do,” Petersen added.



– ‘Sign of confidence’ –



According to analysts, a ray of hope is Norwegian energy giant Equinor’s acquisition of nearly 10 percent of Orsted’s shares, making it the second-largest shareholder after the Danish state.

“It’s a blessing, a sign of confidence,” Petersen said.

Fulop noted that the acquisition was made “before the American election, so they don’t think it’s an issue, so it’s quite positive”.

Orsted is also gradually replenishing its coffers and recently sold half the Changhua 4 offshore wind farm to Taiwan’s Cathay Life Insurance for around $1.6 billion.

Despite current headwinds, wind power is predicted to have a bright future.

The rate of global wind capacity expansion is poisted to double between 2024 and 2030 compared to the previous six year, according to the International Energy Agency.

“Cleantech continued to grow through the last Trump presidency, and we are confident that it will continue to grow through this one. Because it is cheaper and local and drives energy security,” Kingsmill Bond, an energy strategist at US think tank Rocky Mountain Institute.

New GoM Wind Lease Auction Planned After BOEM Receives Competive Interest

After receiving limited reponse in two auctions, BOEM now says two new companies are competitive for two leases offshore from Texas (file photo)

Published Dec 12, 2024 4:12 PM by The Maritime Executive

 

The Bureau of Ocean Energy Management is resetting its plans to develop the offshore wind energy sector in the Gulf of Mexico after determining there is competitive interest from at least two companies. Earlier this year, a planned offshore wind lease auction for the Gulf of Mexico was canceled.

While the efforts to auction leases in the Gulf of Mexico have so far drawn little interest, the bureau now reports it has determined there is competitive interest in two potential lease areas located off the southeast coast of Texas. At the end of July, the bureau published a Request for Competitive Interest after receiving an unsolicited request from Hecate Energy Gulf Wind, a Chicago-based company focusing on renewable energy and storage projects. To date, the company has developed mostly solar energy but proposed to BOEM the Gulf Wind 2 project which would consist of up to 133 fixed-bottom turbines, each with a capacity of 15-23 MW, resulting in an overall maximum capacity of approximately 2000 MW.

Under the government guidelines, BOEM needed to seek other qualified companies with potential interest in the sites. It could then either move forward with a noncompetitive lease or determine that interest supported a lease auction.

Hecate’s proposal is for two lease areas separate from the ones BOEM was pursuing. It reported that the two areas were evaluated as options for development in May 2022, but were not recommended for auction due to their area being less than 90,000 acres each, which was presumed to be too small an area for an economic project. Hecate however believes that these sites, developed in tandem with a total of 142,000 acres, would provide adequate area for a commercial project. One lease area is just over 74,0000 acres and the second is just over 68,000 acres.

Invenergy, another Chicago-based renewable energy company that has a broad portfolio of wind, solar, transmission infrastructure, and natural gas power generation and advanced energy storage projects, submitted to BOEM’s Request for Competitive Interest. The company has not developed offshore wind energy but registered interest in the same leases and was qualified by BOEM.

BOEM reports it is reviewing the other comments received as it works to define the opportunities in the Gulf of Mexico. Based on the two companies’ interest, BOEM will move forward with the competitive lease process and now expects to schedule a lease auction for the sites in 2026.

There have been several previous attempts to develop the offshore wind sector in the Gulf of Mexico. In August 2023, BOEM conducted the first-ever offshore wind energy auction for the Gulf of Mexico. It offered two areas offshore from Galveston, Texas, and a third offshore from Lake Charles, Louisiana. The Texas sites did not receive bids but the Louisiana site of just over 102,000 acres was sold to RWE for a bid of just $5.6 million. The company said it was unsure of its plans considering it a long-term opportunity while BOEM said it had the potential for approximately 1.24 GW of energy.

A second Gulf of Mexico auction was planned for 2024 with BOEM set to offer four leases. While it received 25 comments, only one company expressed interest in participating in the auction. BOEM cancelled the sale due to a lack of competitive interest saying it would review plans for the region. 

Texas Land Commissioner Dawn Buckingham on behalf of the state has openly opposed the development of these or any offshore wind leases calling the Biden administration's efforts “reckless.” She cited Hecate’s lack of experience with offshore wind development, raised concerns about the impact on wildlife, and highlighted the exposure to hurricanes in the Gulf of Mexico.

Ørsted Sells Interest in Taiwan Offshore Wind Farm to Life Insurance Co.

Ørsted is selling a half interest in the fourth phase as it develops Taiwan's largest offshore wind farm (Ørsted)

Published Dec 11, 2024 7:17 PM by The Maritime Executive

 

 

Ørsted is expanding the use of the partnership model to Taiwan’s developing offshore wind energy sector by selling a half interest in its under construction Greater Changhua 4 project to Cathy Life. The largest direct investment in an offshore wind farm made by a life insurer, the deal is valued at $1.64 billion and is a further demonstration of investor interest in the sector.

The Greater Changua offshore wind cluster located between about 21 and 37 miles offshore in Taiwan’s northwest quadrant, is the largest and farthest offshore wind farm in Taiwan in terms of installed capacity and distance from the shore. It is divided into four sectors with the second phase also split into two subsectors. When completed, it will provide 1.82 GW of power.

As of the beginning of 2024, Ørsted reported that 107 turbines out of the total 111 wind turbines in Sections 1 and 2 were completed, with nearly 85 percent of them connected to the grid, representing approximately 700 MW, making it the largest grid-connected capacity for a single wind farm in Taiwan. Sections 1 and 2A are now completed with 2B and 4 expected to be completed by the end of 2025.

Ørsted has already partnered for the 605 MW Greater Changhua 1 which is co-owned with Caisse de dépôt et placement du Québec (CDPQ) and Cathay Financial Holdings, with a combined ownership stake of 50 percent. Under the newly announced deal, Taiwan’s leading life insurance company, Cathy Life, will acquire a 50 percent stake in Section 4’s 583 MW capacity. Taiwan-based semiconductor company TSMC will offtake all power generated by Great Changhua 2b and 4 with a 20-year fixed-price corporate power purchase agreement.

The two companies will partner on the investment in the development of the wind farm. Ørsted will continue to have operation and maintenance responsibilities. 

The project is unique as it has also won broad support from nine international banks, three local private banks, and three state-owned banks. It is also the first time that the state-owned First Commercial Bank has taken a role. The financing package for Changhua 4 will also be supported by guarantees from six export credit agencies.

Private equity and other investors have shown strong interest in 2024 in the offshore wind sector, especially in acquiring stakes in mature development projects. It reduces Ørsted’s risk and capital requirements which the company reports it is being used to develop other projects. Other developers are following a similar model to spur the development of the industry.