The recent past has hurt all developers with offshore wind contracts in New York. But for some significantly more than others. 

When Equinor announced the preliminary results of its projects in the state earlier this week, the impairment charge was USD 300m. This corresponds to USD 0.64m per megawatt for the half share the Norwegians have in the three projects Empire Wind 1 and 2 and Empire Wind. 

Similarly, following Wednesday’s accounts, Ørsted has now written down the value of its offshore share of the Sunrise Wind project by DKK 5.3bn (USD 754m), equivalent to DKK 12m per megawatt. This is nine times as much as the Norwegian oil company. Just as the write-down per megawatt is also several times higher than the two other players in the area, Equinor’s partner BP and Ørsted’s own Eversource.

”Sunrise Wind is a more advanced project,” is the logical partial explanation for the difference according to Ørsted CEO Mads Nipper.

Dating back to New York’s first offshore wind tender in 2018, Sunrise Wind does indeed have quite a few years under its belt. However, the same is true for one - and practically as large - of Equinor and BP’s three projects, Empire Wind 1.

Ørsted’s CEO acknowledges that this isn’t the only explanation. Part of the reason is also the very strategy pursued by the Danish energy company when it entered US offshore wind, with a much heavier emphasis on developing a local supply chain. This has resulted in much larger investments years before the final investment decision on the project was made. 

The same strategy that has really hurt the neighboring state of New Jersey. When Ørsted launched impairment charges of an astronomical DKK 19.9bn on the now abandoned Ocean Wind projects, it was partly because the energy company had invested large amounts in e.g. factories and placed firm orders for both key components and subcontractors.

”Already in 2019 and 2020, we took on the first major commitments on these projects, even though there was a lot of uncertainty about the permits,” Nipper explains.

At the time, Donald Trump was still president, and after an initial flirtation with offshore wind, all permitting was put on hold. That part changed when Joe Biden’s administration took office at the start of 2021, but by then the coronavirus lockdowns had brought global supply chains to a standstill, which was later joined by exploding inflation and rising interest rates.

”It would have been a great idea if everything had gone according to plan. It just didn’t. So there’s no doubt that it was a wrong decision to focus so much on delivering on time. Of course, we will learn from this and never ever commit as much capital again as we have done on these projects.”

So far, neither Ørsted/Eversource nor Equinor/BP have pulled the plug on their New York projects. The hope from both camps is that they can bid again in the state’s announced replenishment of lost capacity, which may be put out to tender as early as later this month. Although there is still uncertainty about the timetable and whether the projects already under contract will be available for bidding.

If the latter is not the case, developers will have to withdraw from their contracts. However, this would only be a matter of pennies compared to the write-downs already booked. 

Equinor has put the price tag at USD 16m for its projects. This corresponds to the USD 5,000/MW that also appears in Nyserda’s evaluation of the first bidding round. Ørsted does not wish to comment on the figure, which would mean a cancellation price of USD 4.6m for Sunrise Wind.

However, the Danish energy company has calculated the total cost of canceling its commitments in New York. It will amount to DKK 3bn to get out of its existing contracts with suppliers and other costs, the company said on Wednesday. After the impairment charges, the value of Sunrise Wind is currently set at DKK 401m.

(Translated using DeepL with additional editing by Kristoffer Grønbæk)