Orsted considers bailing on U.S. over tax credit and inflationary concerns

Orsted shot up a flare last week over concerns about the viability of offshore wind in the U.S., saying it could abandon its portfolio in the country barring help from the federal government.

"There is a potential impairment of up to 16bn DKK (USD 2.3bn) across the three categories (supplier delays, interest rates and ITC) for Ocean Wind 1, Sunrise Wind, Revolution Wind, South Fork Wind, Block Island Wind Farm and several onshore projects,” according to a company spokesperson.

The company said they will weather higher impairments if they are unable to secure additional tax credits beyond 30% for Sunrise and Ocean Wind 1.

Two attorneys active in the industry tell NPM the company’s concern is likely centered around the domestic content bonus included in last year’s Inflation Reduction Act, implementation guidance for which was released in the spring by the Treasury.

Developers have found that guidance wanting, and are hoping for clarification and leniency, the sources said.

Jeff Chester, Co-Head of Global Energy Project Finance at Greenberg Traurig, said developers have run into trouble getting suppliers to be transparent on pricing and chain of custody, a must to qualify for the 10% adder. The problem is industry-wide, he said.

“Essentially, domestic content guidance is requiring suppliers to be essentially (an) open book, and the suppliers are not willing to do that,” Chester said. “So, I think the consensus is that without additional guidance — that modifies some requirements — the domestic content bonus is going to be very difficult to secure.”

Cypress Creek Renewables’ Director of Federal Policy and Strategy Grant Carlisle also spoke with NPM regarding the challenges with securing IRA tax adders and said, at least so far, the Biden Administration had still failed to “answer a lot of the questions the industry and stakeholders still have.”

“I don’t know anybody that thinks they can meet domestic content requirements as they are laid out currently with the current state of manufacturing and the supply chain,” Carlisle said.

Another attorney, who spoke with NPM on the condition of anonymity, said there is a conflict between the ambitious goals set by the federal government (30 GW by 2030) and the Biden administration’s focus on American jobs and American manufacturing in what “should be an international industry.”

In that environment, the domestic content bonus has become a snagging point for many developers.

“I think it's (not just) the initial supplier, they have to go back and document who they're using as subcontractors also,” the source said. “So, I can understand if some companies don't want to go that far, or maybe the subcontracts are with foreign companies … or even Chinese companies.”

Orsted could also hold concerns around how to determine the fair market value (FMV) step-up in basis, especially after a recent ruling against Terra-Gen’s 1500 MW Alta Wind in California, Chester said.

While the ITC is typically based on a project’s capex, there are strategies to capture a development fee through a sale, with the new price representing the project’s fair market value, Chester said. Orsted could now have doubts about their prospects, particularly if they planned to secure “beyond 15 or 20%” step-up in FMV.

“It's a large company with a large presence, and as they've said, they need to make money from these projects,” the second attorney said. “And if they're going to lose money, they're not going to continue with them, which is unfortunate.”

The industry is lobbying for new guidance from the Treasury, but it’s unclear when – or if – it’s coming, Chester said. The second attorney thinks the appeals for clarity could be coming from outside the industry, as well.

“Depending what pressure they're receiving from companies or probably even from the White House, maybe they have to put out new final guidance,” the source said.

The company is looking for more direct lifelines. Like many of its peers developing offshore projects off the East Coast, Orsted filed a petition earlier this summer with state regulators in New York seeking changes to its contract for the 924 MW Sunrise Wind, expected online in 2025. Equinor is also looking to modify contracts for Beacon Wind 1 and Empire Wind 1.

The New York State Energy Research and Development Authority (NYSERDA) — which selected Sunrise in its first offshore wind solicitation — filed comments in the case on August 28, according to Emily Cote, Communications Manager at the agency.

An analysis that market conditions and supply chain bottlenecks are “significant, unforeseen and not unique to New York,” Cote told NPM.

“However, NYSERDA's analysis found that it does not appear reasonable for developers to have assumed that a low interest rate environment would persist throughout the period in which their projects were to be financed,” said Cote, “given that the levels of interest rates witnessed today are indeed precedented.”

Orsted’s caution comes as its former partner Eversource continues to unwind its stake in their joint venture, advancing its planned exit from offshore wind.

Onshore difficulties

And while the majority of the DKK 5bn in impairments are focused on Orsted’s offshore wind projects, the firm has confirmed to NPM that about 20 percent is stemming from onshore wind developments, largely centered around Texas and the Midwest. Although he wouldn’t outline which onshore projects have been impacted, Orsted spokesman Tom Christiansen tells NPM “the impact on US onshore projects is roughly DKK 1bn out of the up to DKK 5bn total interest rates impact” on the firm’s U.S. portfolio.

NPM is tracking more than 1.8 GW of onshore wind projects currently under development in the U.S. by Orsted, many of which have already faced delays. This includes the Barranca Wind Project being developed in Zapata County, Texas, which was expected online back in 2022. That project is using GE turbines. Another of Orsted’s major onshore projects is the Emerick Wind Project, which is being developed in Madison County, Nebraska that is currently expected online in 2024. No offtake has been announced for either project.

Other Orsted onshore projects currently under development include 250 MW Badger Wind in North Dakota, 250 MW Helena Wind in Texas, 226 MW Antelope Flats Wind in Texas, and 201 MW Sunflower Wind in Kansas. With the exception of Helena Wind, which has PPAs in place with Google and Henkel, none of these projects have named PPA offtakers, though the company has indicated both Badger and Sunflower have PPAs in place.

Signs of trouble have been brewing for some time for Orsted’s onshore wind portfolio as the firm has quietly distanced itself from the technology throughout the year. In an interview back in January, the firm told NPM it would be shifting its focus more toward solar throughout the year as it built out its project base in Texas. Earlier this summer, NPM also reported the firm had hired Bank of America to sell 900 MW of onshore wind including at least one project that is still under development. Finally, despite laying the groundwork for a run at the Gulf Coast Offshore Wind auction, the firm elected not to submit a bid, even for one of the two Texas WEA’s, which could have been acquired for as little as USD 5m.

*This story was originally published exclusively for NPM subscribers last month.


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