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High interest rates will keep the costs of renewable energy elevated, Ørsted’s boss has warned, as he hailed the wind developer’s “positive steps” following a dismal 2023.
“The longer interest rates stay high, the longer prices in [renewable energy] auctions will stay high,” Mads Nipper said, although he added that Ørsted’s projects were less sensitive than others’ because many were already under construction with costs locked in. “We expect and hope they will come down.”
Renewable energy projects are sensitive to interest rates, which have been rising since 2021, because developers need to raise money to cover high upfront costs — particularly in the wind sector.
Energy consultancy Wood Mackenzie found in a recent report that a 2 percentage point rise in US interest rates could drive up the overall cost of a renewable energy project by 20 per cent.
The US Federal Reserve implied on Wednesday that rate cuts would be delayed until the second half of the year at the earliest. Fed chair Jay Powell said it was “likely to take longer for us to gain confidence that we are on a sustainable path down to 2 per cent inflation”.
Nipper is trying to restore the fortunes of Ørsted, the world’s largest offshore wind developer, after rising costs due to high interest rates and other challenges prompted it to walk away from two large US projects last year, triggering multibillion-dollar impairments.
The company in February suspended its dividend and cut targets for the amount of renewables it plans to develop. It also said it would cut up to 800 jobs and withdraw from offshore wind markets in Norway, Spain and Portugal.
Shares in Ørsted have fallen 70 per cent since peaking in January 2021 at the height of investor frenzy over environmentally friendly stocks, when the company was feted for successfully moving away from oil and gas.
They climbed more than 3 per cent on Thursday as the company reported higher earnings from offshore wind sites.
It also reversed an impairment of DKr800mn ($115mn) it had booked last year on its 924-megawatt Sunrise Wind project in New York, after a final investment decision in March to proceed with the project after all.
That is one of several “important milestones”, along with finishing its Greater Changhua offshore wind farms in Taiwan, which Nipper said would help restore investor confidence. “This is a long journey,” he added.
The company is still experiencing strains in its supply chains, Nipper said, but is trying to overcome them including by striking long-term agreements for access to installation vessels. It now has 7.6GW of offshore wind under construction, its highest ever.
Overall, Ørsted reported quarterly revenues of DKr19.2bn and a pre-tax profit of DKr4.4bn.
It comes as fellow Danish group Vestas, the largest turbine supplier outside of China, reported a quarterly pre-tax loss of €105mn, against a €31mn profit in the same period a year earlier, with fewer turbines delivered.
Henrik Andersen, chief executive, said earnings were typically weighted towards the second half of the year and the results were “in line with expectations”. The company is maintaining its guidance for the year of a 4-6 per cent profit margin.
“I think the industry is in a better place,” he added. “It is maturing. Most interactions I see show that we are becoming much more disciplined.”
Vestas shares on Thursday fell roughly 4 per cent to DKr179.2, while Ørsted’s rose almost 3 per cent to DKr391.8.
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