Shares in Orsted A/S fell the most in more than a month after New York regulators ruled against a cost adjustment for offshore wind farms prompting fears about a further write down for one of the company’s US projects.
The New York Public Service Commission unanimously decided on Thursday that developers must abide by the terms in existing contracts for projects including Orsted’s Sunrise Wind, an 880-megawatt wind farm it’s developing with Eversource Energy. Offshore wind developers are being hit by the rising cost of materials, higher interest rates and inflation.
Orsted already warned of impairments of as much as 16 billion Danish kroner ($2.3 billion) to its US portfolio in August. The ruling is a further blow for the Sunrise Wind project that was already being held up by supplier delays. The company may have to decide whether to write down the wind farm further and keep building or walk away and pay termination fees, according to a Citigroup Inc. analyst.
Orsted shares fell as much as 8.3%, the steepest intraday fall since Sept. 5. Its shares are down 47% year-to-date.
“This will be a tough choice for Orsted, having to choose between the lesser of two evils,” Citigroup’s Jenny Ping wrote in a note. She estimated cancellation fees for this project alone would be around $215 million.
The NYPSC’s decision is a blow to developers that have said they may not be able to complete projects under existing contract terms. The sought-after adjustments would have burdened consumers with up to $12 billion in added costs.
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Chief Executive Officer Mads Nipper said in September that his company was prepared to walk away from US projects without further support. It’s in talks with the White House to secure further subsidies from the Inflation Reduction Act to support its Sunrise Wind, Ocean Wind 1 and Revolution Wind developments.
Orsted is “paying the price for the strategic decision” of early spending in the US in the first wave of offshore wind developments there, JP Morgan Chase & Co. analysts including Javier Garrido wrote in a note, adding such struggles are not necessarily mirrored by industry peers.
Orsted’s Americas chief executive officer, David Hardy, said the company was “disappointed” in the PSC’s decision. “We are reviewing the PSC’s order, but Sunrise Wind’s viability and therefore ability to be constructed are extremely challenged without this adjustment,” he said in an emailed statement.
Clean-energy stock valuations have come further under pressure lately. A Goldman Sachs Group Inc. renewables basket that includes stocks like Vestas Wind Systems AS, Orsted and Portugal’s EDP SA is trading at a 28% discount to the MSCI Europe Growth Index based on forward earnings.