Orsted, the wind-energy giant that has undergone a remarkable transformation in recent years, has announced a series of strategic moves to address its current difficulties in the U.S. offshore wind market. With a focus on cost-cutting, asset sales, and a revised business strategy, Orsted aims to regain its strong position in the global wind energy sector.
A Struggle in the U.S. Market
Despite being a major player in wind energy development worldwide and successfully diversifying from its origins as a small state oil company in Denmark, Orsted has encountered significant challenges in expanding into the U.S. market. The company’s aggressive push to enter new markets, particularly in the U.S., has resulted in setbacks and a decline in stock-market valuation.
Addressing Challenges Head-On
To address these challenges, Orsted has identified several key areas that require attention. Firstly, supply chain bottlenecks in the U.S. have hindered the company’s operations. Additionally, higher interest rates and difficulty obtaining tax credits have further complicated its progress. Consequently, Orsted made the decision to withdraw from two prominent wind projects off the coast of New Jersey due to spiraling costs.
Portfolio Adjustments
As part of its ongoing efforts to streamline operations, Orsted recently terminated a power supply agreement for another U.S. offshore project due to unfavorable terms. However, the company will acquire 50% ownership of a different project, aiming to secure higher tariffs for its output and becoming the sole owner.
Bolstering the Balance Sheet and Ensuring Long-Term Growth
Orsted has announced its commitment to implementing further measures to strengthen its balance sheet and support sustainable long-term growth. By implementing these measures, the company aims to ensure capital structure resilience through 2030.
In conclusion, Orsted understands the challenges it faces and is taking proactive steps to overcome them. By reassessing its business priorities and focusing on cost-cutting and asset sales, the company is well-positioned to thrive in the wind energy industry once again.
Orsted Announces Strategic Changes and Cost Reduction Measures
Orsted, a leading renewable energy company, has revealed its plans to reduce development costs and focus on strategic markets. As part of this strategy, the company will be exiting several offshore markets closer to home, including Norway, Spain, and Portugal. Additionally, Orsted will deprioritize development activities in Japan and implement leaner development costs for its floating offshore wind projects.
In an effort to further optimize its financial position, Orsted has announced a pause on dividends for the financial years 2023-2025. However, the company aims to reinstate dividends starting from the financial year 2026.
To streamline operations, Orsted plans to eliminate approximately 600-800 positions worldwide. In the coming months, around 250 roles will be made redundant.
Analysts from Citi, Jenny Ping and Rory Graham-Watson, have commented on Orsted’s strategic update, stating that it aligns with market expectations. However, there remains uncertainty regarding the impact on the company’s shares.
Orsted shared these measures alongside its earnings report. The company’s fourth-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA), excluding new partnerships, reached DKK8.62 billion, surpassing the FactSet consensus of DKK6.08 billion. This compares to DKK6.62 billion reported in the previous year.
Looking ahead, Orsted anticipates EBITDA, excluding new partnership agreements and provisions, to range between DKK23 billion and DKK26 billion in 2024. By 2030, the company projects EBITDA to reach DKK39 billion-DKK43 billion. Gross investments in 2024 are expected to amount to DKK48 billion to DKK52 billion.
The implementation of these strategic changes will position Orsted for long-term growth and strengthen investor confidence.
