Ørsted’s severe impairments on its US offshore wind turbine business exposes the problems and challenges that project developers and the wind turbine industry in general are currently facing. 

However, a 4-5% drop in the Vestas share price on the news from Ørsted is ”a harsh reaction”, according to Danish bank Sydbank’s Head of Equity Research Jacob Pedersen.

”Vestas is on the way to working its way out of many bad situations, and in that light, I actually think it’s a harsh reaction - also in relation to the fact that Vestas turbines are not involved in the projects that Ørsted is having problems with.”

”But of course, there are also projects that Vestas has won, and which are expected to be installed in the timeframe in which these projects that are now causing Ørsted problems are also located. There may be some fear that customers come and demand lower prices than originally agreed to,” says Jacob Pedersen to MarketWire about the price reaction.

Unprecedented drop in the Ørsted share

At noon on Wednesday, Vestas shares were 4.5% lower at DKK 161.60 (EUR 21.68) following the announcement late Tuesday from Ørsted. Ørsted, however is faring far worse, having been sent into a historic stock market slump of 22% to DKK 436.50, corresponding to a drop in the energy group’s market capitalization of DKK 51bn in a single day.

Ørsted has so far taken a DKK 5bn impairment on its development portfolio in the US due to higher equipment prices, supply difficulties and higher interest rates, but the write-downs could grow to as much as DKK 16bn, the utility announced on Tuesday evening.

”It’s negative when the largest offshore wind farm developer in the world, the one I consider the most efficient and best in class, makes an announcement like this. It should set alarm bells ringing among politicians.”

”This is an indication that the foundation for building offshore wind farms has shifted incredibly much in recent years with rising costs, rising interest rates and a ramp up in the supply chain that many find difficult to keep up with,” says Pedersen.

Deficit in the sector hits investments

After large deficits have characterized the wind turbine industry in recent years, it is not surprising that the supply chain is not investing and expanding in the US to the extent necessary to get the market going, according to the head of research.

The financial statements of wind turbine manufacturers have been anything but encouraging in recent years, and even Vestas, which remained in the black for the longest of the major Western players, had to report a massive loss in 2022.

”Vestas was one of the last bastions among wind turbine manufacturers to fall in 2022, after Siemens Gamesa, GE and Nordex have also been unable to make money for the last two, three or four years. So there is no money in the coffers to make the investments that politicians want and that are necessary if you want to get these markets up and running,” says Jacob Pedersen.

Untenable projects

”When we also see prices for, for example, seabed lease, plummeting completely, leaving offshore wind farm developers in a situation where they will find it incredibly difficult to make money on their projects, alarm bells should be flaring,” he adds.

In recent years, OEMs and their supply chain have ”borne the brunt” while developers actually made good money, but now offshore wind farm developers are also being hit.

”The question is when consumers will realize that the transition from black to green energy is not free. If you want this from a political point of view, you also need to ensure that the framework conditions are better,” says Pedersen.

(Translated using DeepL with additional editing by Simon Øst Vejbæk)