Charges unveiled by two offshore wind sector leaders highlight the challenges the fast-growing renewables industry is facing, ranging from quality issues to cost inflation, that are hitting profit outlooks.
Denmark's Ørsted, the world's No. 1 offshore wind farm developer, last Thursday announced a writedown on a large U.S. offshore wind project and an earnings forecast for 2023 that fell short of analyst estimates.
Madrid-listed Siemens Gamesa, the world's biggest offshore wind turbine maker, reported a 472 million euro ($510 million) hit to operating profit due to faulty turbine components that require higher warranty and maintenance provisions.
Despite rising demand for green energy, dark clouds are gathering over the offshore wind industry as rising interest rates and cost inflation begin to hit corporate earnings, potentially forcing energy companies to renegotiate energy supply contracts.
"Higher interest rates and a stricter monetary environment lead to increased financing costs as well as availability of financing for developers," Jefferies analysts wrote last week. "Combined with inflation (wind turbines, labour, transport), developers are seeing downward pressure on returns."
Ørsted shares tumbled by more than 7% on Friday after it announced a 2.5 billion Danish crown ($366 million) writedown on its Sunrise Wind project off the coast of New York, citing changes to its earnings projections.
It said earnings at the prices it had agreed for the project - due to become fully operational in 2025 - will be squeezed by significant inflationary pressures and higher interest rates now faced across the sector.
'TOTALLY DIFFERENT EXPECTATION'
Ørsted Chief Executive Mads Nipper told reporters on Friday that the price for power produced at Sunrise was agreed "several years ago when there was a totally different expectation for the market outlook".
Shares in Siemens Gamesa were unchanged due to a standing tender offer by German parent Siemens Energy, which aims to take the firm off the Spanish stock exchange.
It said that a broad mix of components had exposed quality flaws during an in-depth analysis, requiring the company to pay for potential future failures.
Still, Chief Executive Jochen Eickholt said he remained convinced of the long-term growth potential of the market, echoing similar comments from Nipper.
Ørsted expects 2023 earnings before interest, tax, depreciation and amortisation (EBITDA) excluding new partnerships of 20-23 billion crowns, short of the 24.2 billion crowns expected by analysts in a company-compiled consensus.
The company said its forecast assumes significantly higher earnings from its offshore business, while earnings from its onshore division are expected to remain at last year's level.
Profit last year also took a hit from overhedging and ineffective hedging, Ørsted said. Announcing preliminary results for 2022, the company said it expects EBITDA excluding new partnerships at 21.1 billion crowns. Full-year results are scheduled for release on Feb 1.
($1 = 6.8561 Danish crowns)
($1 = 0.9249 euros)
(Reuters - Reporting by Nikolaj Skydsgaard and Christoph Steitz; Editing by David Goodman, Jason Neely and Bill Berkrot)