As part of the continued maturation and review of its ongoing US offshore wind projects towards a final investment decision, Ørsted has assessed how the combined negative impacts from the supply chain, lack of progress in negotiations on investment tax credits (ITCs) and rising interest rates are affecting the company's US portfolio. The company writes in a press release.
Ocean Wind 1, Sunrise Wind and Revolution Wind are negatively impacted by a number of supply chain delays. Ørsted has concluded that there is an increasing risk that these suppliers will not be able to meet their commitments and agreed schedules. This could create consequences that will necessitate future remobilizations to complete the installation of our projects, potential deferral of revenues, additional costs and other consequences for the business case for the individual project. These delays will result in impairment charges of up to DKK 5 billion. DKK, assuming that there are no further negative developments in the supply chains of these projects.
Lack of decision on tax deductions
In addition, we have not experienced the expected progress in the dialogue with federal stakeholders on additional investment tax deductions for Ocean Wind 1 and Sunrise Wind. We continue the dialogue with federal stakeholders to qualify for investment tax deductions of more than 30%. Failure to do so could result in impairment charges of up to DKK 6 billion. The final, possible impairment charges will be decided on the basis of a probability-weighted assessment of the possibilities of obtaining additional investment tax deductions.
In addition, long-term interest rates in the US have increased, which affects our US offshore wind projects and certain onshore wind and solar projects. If interest rates remain at current levels at the end of the third quarter, this will result in impairment charges of approximately DKK 5 billion. kr.
The impairments on Ocean Wind 1, Sunrise Wind, Revolution Wind, South Fork Wind, Block Island Wind Farm and several US onshore wind and solar projects will be included in our interim report for the first nine months of 2023.
Ørsted's portfolio of ongoing US offshore wind projects does not meet our value creation targets from a lifecycle perspective, but we remain confident that the portfolio from a forward-looking perspective will be within a 150-300 basis point spread to WACC.
Adjusted for the expected impairments, we maintain our target of an average return on invested capital (ROCE) of approximately 14% in the period 2023-2030.
Ørsted continues to develop its projects
Ørsted will continue to develop its ongoing offshore wind projects, including by obtaining final regulatory approvals and local permits and working with suppliers to address delays, as well as by continuing the dialogue with the authorities to try to qualify for an investment tax credit of at least 40% on all projects.
We will work towards making a final investment decision on Ocean Wind 1, Sunrise Wind and Revolution Wind towards the end of 2023 or early 2024. If a final investment decision is made, Ørsted now expects to commission Ocean Wind 1 in 2026.
David Hardy, Executive Vice President and Regional Director for the Americas at Ørsted, says: "The US offshore wind market remains attractive in the long term. We will continue to work with our stakeholders and explore all opportunities to improve our ongoing projects, including through continued dialogue on investment tax credits, OREC adjustments and other initiatives that impact the business case."
The content of this announcement does not change Ørsted's previously announced expectations for the financial result for the financial year 2023 or the announced expected investment level for 2023.
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