A complete halt to the development of Orsted’s 924 MW Sunrise Wind project could have devastating financial repercussions for the Danish utility, as revealed by court filings.
Orsted, which notably raised $9.4 billion through a capital increase last year, stands to lose an astonishing $8 billion in sunk costs and associated penalties should the Sunrise project be scrapped entirely.
Moreover, if both the Sunrise and Revolution Wind projects are shelved, the total financial damage to the company could exceed $11 billion, drastically impacting its operations and future plans.
In a proactive move, Orsted filed a legal complaint to contest the suspension of its lease as of December 22, which halted work on the under-construction Sunrise Wind project. The complaint includes a plea for a preliminary injunction aimed at lifting the current work stoppage.
According to Orsted, the project is nearly 45% complete, having already invested billions based on the permits that were validly issued. The utility claims that this work stoppage is leading to losses surpassing $1 million each day. Additionally, if delays continue, the risk of project cancellation looms, which could inflict enterprise-level harm on Sunrise Wind, resulting in losses exceeding $8 billion.
At the time the stop work order was enforced, Orsted had already expended or committed about $7 billion toward planning, permitting, and constructing Sunrise Wind. Furthermore, if the project is abandoned, the company would incur an additional $1 billion in breakaway costs. As stated in the court documents, "Sunrise Wind may lose all of this investment if the unlawful Stop Work Order remains in effect."
Beyond the immediate financial loss, Orsted would also miss out on potential revenues amounting to billions throughout the project's lifespan due to agreements established under New York’s Offshore Renewable Energy Certificate Purchase Agreement (OREC).
The stakes are incredibly high, with Jacob Pedersen, chief stocks analyst at AL Sydbank, warning that the $8 billion loss from a total cancellation of Sunrise Wind would closely mirror the $9.4 billion generated from Orsted's recent capital increase. If we factor in the hypothetical earnings from future power sales, the potential losses could far exceed the capital raised during this rights issue.
Yet, the financial toll doesn't stop there. The same stop-work order that impacts Sunrise Wind has also affected the Revolution Wind project, a 704 MW venture Orsted is developing in collaboration with Global Infrastructure Partners’ Skyborn Renewables. On January 1, the developers launched their challenge against the stop work order for Revolution Wind.
Court documents suggest that shelving Revolution Wind could impose another $3 billion in losses on Orsted, and given that the entire project cost shared with Skyborn is around $6 billion, total losses could reach upwards of $11 billion.
Originally, Orsted's rights issue was designed to ensure that the company remained well-capitalized up until 2027, particularly to support its significant offshore wind construction portfolio, most of which is located outside the United States. However, just the costs resulting from the U.S. work stoppages now threaten to consume the entire $9.4 billion raised.
"There are very high political risks associated with Sunrise Wind," Pedersen emphasized. While he maintains that Revolution Wind—which is further along in its development—will likely be completed, he cautioned that the political climate under the Trump administration poses significant threats to Sunrise Wind.
Pedersen expressed skepticism about the rapid lifting of the construction halt at Sunrise Wind, citing stronger arguments for 'national security considerations' that could be subject to rigorous legal scrutiny before any lifting of the halt occurs. Even if the order were lifted, there is nothing stopping the Trump administration from imposing new construction moratoriums, a situation that has previously impacted both Revolution Wind and Equinor's Empire Wind projects.
"It appears that Donald Trump's opposition to offshore wind is so deeply rooted that he may not seek negotiations but rather push for ongoing moratoriums," he suggested. This troubling outlook makes the possibility of a full cancellation of Sunrise Wind increasingly realistic.
Conversely, Pedersen believes that Revolution Wind stands a greater chance of continuation, having achieved 87% completion compared to Sunrise’s 45%, with 58 out of 65 wind turbines already installed offshore.
Given its advanced status, Revolution Wind is nearing completion, especially if Orsted successfully navigates its legal complaint regarding the construction stoppage and can resume work.
A court hearing concerning Revolution Wind is scheduled for Monday.
On a brighter note for Orsted, since the capital increase, the company has capitalized on opportunities by selling half of its vast Hornsea 3 project in the UK and 55% of the Greater Changhua 2 project in Taiwan, which have positively influenced its financial standing.
Despite these developments, AL Sydbank continues to issue a 'sell' recommendation for Orsted. During mid-morning trading at the Copenhagen stock exchange, Orsted’s shares fell by 0.94%, settling at DKr131.20 ($20.52).
What do you think about the political implications surrounding these projects? Could they truly derail such significant investments? Feel free to share your thoughts below!
