IBDRY Iberdrola SA (PK)

By Giulia Petroni

A wave of impairments is sweeping the wind-energy sector in the U.S. and elsewhere amid high interest rates, inflation and supply-chain woes, forcing developers to put off projects and casting doubts over the industry's outlook.

Energy giants Oersted, BP and Equinor show the latest signs of trouble.

The Danish developer said Tuesday that it booked $4 billion in charges related to its U.S. offshore portfolio and abandoned the development of two wind projects off the coast of New Jersey--Ocean Wind 1 and 2--due to spiraling costs and supplier delays. Oersted had previously flagged increasing risks for its projects in the country, citing the lack of favorable progress on tax credits.

The decision came a week before legislative elections in New Jersey, where wind turbines have become a top target for Republicans against Democratic Gov. Phil Murphy's plan to have 100% of the state's power coming from renewables by 2035.

"The industry isn't in a good shape," Stifel's vice president of equity research for utilities and renewables, Martin Tessier, told Dow Jones Newswires. "I think we'll see a softening of long-term targets... and less projects will be developed in the long term."

Governments around the world have set ambitious targets to increase the share of renewables in their energy mixes, but their plans are now under pressure as wind developers face a surge in financing costs. Project owners usually sign long-term deals outlining terms to sell electricity or secure subsidies before construction starts. Some are now lamenting that these terms don't reflect increased costs, and their projects aren't viable anymore.

Earlier this week, BP booked a $540 million pretax impairment charge on three wind projects off the coast of New York after regulators rejected a bid to renegotiate power-purchase terms, which the company requested to reflect inflationary pressures and permitting delays. Equinor, BP's partner on the Empire Wind and Beacon Wind projects, booked an impairment of around $300 million on its U.S. portfolio. The companies said they are assessing the impact of the regulators' decision on their future development plans.

Other projects have also been canceled.

Iberdrola's subsidiary Avangrid scrapped power purchase agreements for a 804-megawatt wind-farm project known as Park City Wind in Connecticut due to financial challenges. SouthCoast Wind, a joint venture between Shell New Energies US and Ocean Winds North America, said it would terminate PPAs for a planned project in Massachusetts due to a significant increase in projected capital expenditures and finance costs. Ocean Winds was created by Portugal's EDP Renovaveis and France's Engie.

Swedish developer Vattenfall said earlier this year that it saw project costs climbing up to 40% after booking an impairment for halting the development of the Norfolk Boreas wind farm in the U.K. Germany's Siemens Energy said it sees its wind-turbine business posting worse fiscal 2024 losses than market expectations as it works through quality issues and ramp-up challenges in offshore.

"The economics of wind are proving more difficult thanks to higher costs of capital and higher interest rates," said Russ Mould, AJ Bell's investment director, in a statement. "The laws of physics are coming into play with regard to how the wind turbines are made. They require large amounts of concrete, steel, rare-earth-based magnets and lubricants to ensure they work reliably in potentially hostile environments, but the costs are going up, thanks to inflation, and this is taking its toll on manufacturers."

But some projects are still moving forward. Oersted took a final investment decision on Revolution Wind, an offshore 704-megawatt project in Connecticut and Rhode Island. Utility Dominion Energy on Tuesday received a key federal approval for its 2.6-gigawatt offshore wind project in Virginia.

In Europe, policymakers recently released an action plan to address the sector's mounting challenges, saying they are working to ensure faster permitting, improved auction criteria, easier access to finance and guarantees, as well as a more competitive international environment. The European Union's plan was welcomed as "a game-changer for the industry" by trade group WindEurope, which called for action earlier this year amid high costs, long permitting processes and rising competition from Chinese manufacturers.

Write to Giulia Petroni at giulia.petroni@wsj.com

(END) Dow Jones Newswires

November 01, 2023 09:42 ET (13:42 GMT)

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