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High interest rates will keep the cost of renewable energy high, Ørsted’s boss warned, hailing the wind energy developer’s “positive steps” after a dismal 2023.
“The longer interest rates stay high, the longer prices stay [renewable energy] “Auctions will remain high,” said Mads Nipper, although he added that Ørsted’s projects are less sensitive than others because many are already under construction and costs are fixed. “We expect and hope that they will go down.”
Renewable energy projects are sensitive to rising interest rates since 2021 as developers need to raise money to cover high upfront costs – particularly in the wind sector.
Energy consulting firm Wood Mackenzie found in a recent report that a two percentage point increase in U.S. interest rates could increase the total cost of a renewable energy project by 20 percent.
The US Federal Reserve indicated on Wednesday that interest rate cuts would not occur until the second half of the year at the earliest. Fed Chairman Jay Powell said it “will likely take longer for us to gain confidence that we are on a sustainable path to 2 percent inflation.”
Nipper is trying to restore the fortunes of Ørsted, the world’s largest offshore wind energy developer, after rising costs due to high interest rates and other challenges led the company to withdraw from two major U.S. projects last year, resulting in impairment losses of several billion dollars.
The company suspended its dividend in February and lowered targets for the amount of renewable energy it plans to develop. The company also announced it would cut up to 800 jobs and withdraw from the offshore wind power markets in Norway, Spain and Portugal.
Shares in Ørsted have fallen 70 percent from their peak in January 2021, when the company was at the height of investor frenzy over eco-friendly stocks and was celebrated for its successful transition away from oil and gas.
They rose more than 3 percent on Thursday as the company reported higher earnings from offshore wind farms.
It also reversed a DKr800 million ($115 million) impairment charge that the company booked last year on its 924-megawatt Sunrise Wind project in New York, following a final investment decision in March had been made to continue the project.
This is one of several “key milestones,” along with the completion of offshore wind farms in Greater Changhua, Taiwan, that Nipper said would help restore investor confidence. “It’s a long journey,” he added.
Nipper said the company was still struggling with tensions in its supply chains but was trying to overcome them, including by entering into long-term agreements for access to installation vessels. There are now 7.6 GW of offshore wind energy under construction, more than ever before.
Overall, Ørsted reported quarterly sales of DKr 19.2 billion and pre-tax profit of DKr 4.4 billion.
Danish group Vestas, the largest turbine supplier outside China, reported a quarterly pre-tax loss of 105 million euros, compared with a profit of 31 million euros in the same period last year, as fewer turbines were delivered.
Henrik Andersen, chief executive, said earnings are typically focused on the second half of the year and results were “in line with expectations”. The company is sticking to its annual forecast of a profit margin of 4 to 6 percent.
“I think the industry is doing better,” he added. “It’s maturing. Most interactions I see show us becoming much more disciplined.”
Vestas shares fell about 4 percent to DKr179.2 on Thursday, while Ørsted shares rose almost 3 percent to DK391.8.