Eversource Energy and Ørsted A/S will likely cancel their 924-MW Sunrise Wind project after the New York Public Service Commission rejected a petition to increase its contracted offtake price to account for ballooning costs, industry experts said.
The developers, whose joint venture includes three northeastern US offshore wind projects, have both struggled in recent months, recording writedowns, anticipating impairments, and seeing delays in Eversource's sale of its 50% stake in the joint venture and uncertainties regarding whether the portfolio will qualify for a 10% domestic content bonus tax credit.
Under New York's offshore wind tender program, the New York State Energy Research and Development Authority (NYSERDA) agreed to purchase Offshore Wind Renewable Energy Certificates (ORECs) from each project at a fixed price, but macroeconomic headwinds, such as inflation, global supply chain disruptions and high interest rates, have jeopardized budgets.
The PSC denied the Sunrise Wind petition and similar requests by BP PLC and Equinor ASA for their Beacon Wind and Empire Wind projects, saying its decision was to avoid raising utility customer costs and unfairly compensating developers for "their own delays or unrealistically low bid prices."
Ørsted's stock price plummeted nearly 9.5% on Oct. 13, settling at 325.20 Danish kroner per share, while Eversource units were down almost 7.5% on Oct. 12.
"It is unclear ... whether even getting the bonus 10% tax credit now will bring it into the required returns criteria," analysts at Berenberg wrote Oct. 13 about Sunrise Wind.
"It seems to us that the project is very unlikely to go ahead under its current contract," UBS analysts agreed in an Oct. 13 note to clients. "This implies that the JV may have to pay penalty fees to the state authority ... and may also face break fees with suppliers and other wind-up costs."
"On the other hand there may be very little invested capital remaining to write down" for Ørsted, they continued.
Eversource, meanwhile, will probably need to record another $400 million pre-tax impairment, raising "questions about the ongoing sale process," according to Wells Fargo. It has already recorded a $331 million loss.
Guggenheim analysts agreed, noting Oct. 13 that the PSC decision further obfuscates whether Eversource will be able to find a buyer for its offshore wind business.
"We have found it increasingly difficult to defend the narrative against what has become repeated uncertainty," they emphasized. The New York PSC order "injects even more confusion: how could audited impairments get the probability of occurrence so wrong on the OREC?"
"We simply do not have any comfort at this point with how a sale may proceed or not proceed — including up to a [Revolution Wind] failure and retention of [South Fork Wind]," they continued.
Wells Fargo, however, maintained that "there's still value in the Revolution project" if Sunrise is canceled.
Revolution Wind is a 704-MW project intended to supply power to utilities in Connecticut and Rhode Island. It received its final federal approval in August. The 132-MW South Fork project, off of Long Island, NY, is due to begin commercial operation by the end of this year.
New York Gov. Kathy Hochul on Oct. 12 announced an action plan for NYSERDA to speed up the state's renewable energy goals, including "an accelerated renewable energy procurement process" using simplified bid requirements and inflation indexing "to backfill any contracted projects which are terminated."
On Oct. 13, US$1 was equal to 7.10 Danish kroner.
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