Shares in Orsted and other offshore wind developers have taken a hit after New York regulators rejected their request for a higher price for electricity generated from their projects off the state’s coast. The New York State Public Service Commission defended its decision, stating that altering the contracts would result in higher bills for ratepayers. Residential customers could see their electricity bills rise by up to 6.7%, while commercial or industrial customers may face an increase of up to 10.5%.
Offshore wind developers are already grappling with challenges such as surging costs due to inflation, supply-chain backlogs, and rising interest rates. The mounting expenses are jeopardizing projects currently in development and forcing developers to reassess their viability.
Orsted, for example, recently issued a warning of potential impairments worth 16 billion Danish kroner ($2.26 billion) related to its three wind projects off the U.S. east coast. Delays in the supply chain, higher interest rates, and inadequate tax credits have contributed to the company’s concerns. One of the affected projects, Sunrise Wind, is being developed off the coast of New York in partnership with Eversource. While it has the capacity to power nearly 600,000 homes, its future now hangs in the balance.
“We are disappointed in the PSC’s decision,” commented David Hardy, Chief Executive of Orsted America. “Sunrise Wind’s viability and construction prospects are extremely challenging without this adjustment. We will assess our next steps.”
According to Citi analyst Jenny Ping, Orsted now faces a difficult choice: either accept further impairment of the asset while proceeding with the construction or opt to walk away from the project and pay termination fees estimated to be as high as $215 million.
As a consequence of these developments, Orsted shares have fallen by 48% year-to-date. On Friday, at 1011 GMT, the shares traded 8.5% lower at DKK328.60.