Ørsted isn't worried about inflation, expects US tax reductions

Finishing touches are currently being made to the second part of the Inflation Reduction Act which may trigger added tax reductions. Ørsted expects its piece of the pie.
The Danish energy company expects to collect advantaging tax credits in the US in the future. | Photo: Ørsted
The Danish energy company expects to collect advantaging tax credits in the US in the future. | Photo: Ørsted
by MARKETWIRE, translated by katrine gøthler

The high inflation is persistent and even though Ørsted took a DKK 2.5bn (EUR 335m) impairment on one of its US projects, it’s not something that worries the Danish utility major when seen in the big picture.

At the same time, Ørsted’s expects the future to hold US tax incentives in store for them, says Ørsted CFO Daniel Lerup in connection to Wednesday’s first quarter financial report.

The reason that inflation isn’t causing much stir among Ørsted’s management is that a large part of the company’s pipeline accounts for inflationary surges by equipping contracts with certain regulatory provision – including those in the UK.

”And higher electricity prices driven by the inflation will also tumble eventually,” says the CFO.

”Some projects in the portfolio still have a bunch of capital costs left, and they which will be affected by this, but then some other projects are practically ridden of capital costs. And of course those contracts have en edge if inflation goes up because of the regulatory provisions in place,” Lerup notes. 

He therefore estimates that the two effects will balance each other out across the entire portfolio. 

The US pipeline is exposed, though, exemplified by the Sunrise project which prompted DKK 2.5bn in write-downs last year, as costs for installation vessels suddenly rose more than the general inflation. 

”That’s also why we are in dialog with governments on both federal and state levels, to secure that the state aid available for the projects is also given,” he says. 

That also goes for the tax reductions which are provided though the US Inflation Reduction Act (IRA) meant to push the development of green energy. 

Finishing touches are currently made to the second part of the Inflation Reduction Act which may trigger added tax reductions. And Ørsted expects its piece of the pie.

”We’re pretty optimistic about the increase of investment tax credits also applying to the projects in our portfolio. It’s practically our expectation that we’ll also receive this bigger tax reduction,” concludes Lerup. 

Ørsted has yet to receive the final guidelines from the US financial ministry, but the Chief Financial Officer expects them to come within the next few months. 

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