European energy companies, including Denmark's Orsted (ORSTED.CO), will likely write down more of their U.S. offshore wind investments this week after BP (BP.L) and Equinor (EQNR.OL) booked $840 million in impairments in recent days.
Orsted, the world's largest offshore wind developer, said in August it may see impairments of 16 billion Danish crowns ($2.3 billion) on its U.S. offshore developments due to supply chain problems, soaring interest rates and a lack of new tax credits.
Orsted, which was not immediately available for comment, will post its third quarter earnings on Wednesday.
Soaring costs from rising inflation, interest rate hikes and supply chain delays have cast doubt on plans by U.S. President Joe Biden and several states to use offshore wind to replace fossil fuels in energy production and reduce carbon emissions.
Analysts said Orsted has already warned it will write down at least 5 billion Danish crowns and noted that those impairments could reach as much as 16 billion Danish crowns if interest rates in the U.S. are above a certain level.
"You could say it looks pretty certain that they (Orsted) won't be able to stick to the 5 billion" Danish crowns in impairments, Jacob Pedersen, senior analyst at Sydbank, a Danish bank, told Reuters.
On Tuesday, energy major BP wrote down $540 million in the third quarter on wind projects after officials in New York state rejected a request for better terms to reflect what BP referred to as "inflationary pressures and permitting delays."
Norway's Equinor (EQNR.OL), BP's partner on those New York offshore wind developments, booked a $300 million impairment on the projects on Friday.
BP paid Equinor $1.1 billion in 2020 for a 50% stake in the venture to develop the Empire and Beacon wind projects off New York, which have a combined capacity of 3,300 megawatts (MW), capable of powering about 2 million homes.
Analysts said BP, Equinor and Orsted will likely cancel some contracts to sell power in New York, like other offshore wind developers have already done in Massachusetts and Connecticut.
Orsted has a contract to sell power in New York from its 924-MW Sunrise Wind project off Rhode Island and Massachusetts.
In Massachusetts, two offshore wind developers, SouthCoast Wind and Commonwealth Wind, agreed to pay local utilities to terminate deals that would have delivered around 2,400 MW of energy.
SouthCoast is owned by units of Shell (SHEL.L), which will report earnings on Thursday, and Ocean Winds.
Ocean Winds is owned by units of Portuguese energy company EDP Energias de Portugal (EDP.LS) majority-owned EDP Renovaveis (EDPR.LS) and France's ENGIE (ENGIE.PA).
Commonwealth is a unit of Avangrid (AGR.N), which is majority owned by Spanish energy company Iberdrola (IBE.MC).
Avangrid also canceled a contract to sell power in Connecticut from its proposed 804-MW Park City offshore wind farm.
"Avangrid only lost our guarantees of $48 (million) and $16 million before taxes to terminate the respective contracts for Commonwealth Wind and Park City Wind - before making material investments in the projects," a spokesperson from Avangrid said in an emailed statement.
Avangrid avoided billions in write-offs and preserved the significant value of its lease areas, the spokesperson said, adding the company still expects to deliver the first power from its Vineyard Wind 1 project in 2023.
