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Time to cash in? | Eversource CEO says US offshore wind split from Orsted could add up

ReCharge Magazine|Tim Ferry|May 9, 2022
MassachusettsRhode IslandUSAOffshore Wind

Risks abound in the industry. The US is aiming for 30GW of offshore wind capacity by 2030, in less than eight years, from a base of 42MW, and won't see any more steel in the water until next spring, when both Vineyard Wind and South Fork, one of the JV's projects, enter offshore construction. 

Inadequate marshalling capacity, global supply chain shortages, and a lack of US-flagged vessels and trained workers all threaten to drive up costs and cause lengthy delays, not to mention the threat of litigation stopping a project outright. The costs of Vineyard Wind have already ballooned from an estimated $2.6bn to over $4bn.


Sky-high prices in New York Bight point to 'extraordinary opportunity' to offload East Coast assets, says utility's chief executive

US utility Eversource shed a revealing light on the reasoning behind its announcement of a “strategic review” of its joint venture (JV) with global offshore wind developer Orsted during its first-quarter earnings call – it could be a simple matter of the numbers adding up.

CEO Joe Nolan disclosed that selling its offshore wind assets now could garner a windfall equivalent to actually seeing the projects through to commercial operation, but with none of the risks, while the proceeds would be better deployed in its core business of onshore power transmission and distribution.

The move initially surprised the market, given that the record-setting $4.37bn auction for offshore wind acreage in the New York Bight is widely interpreted as a ringing endorsement for the industry’s prospects, and Eversource’s relatively strong financials. The company’s first quarter earnings were up 20% year on year, from $366m to $443.4m, buoyed ... more [truncated due to possible copyright]

     

Sky-high prices in New York Bight point to 'extraordinary opportunity' to offload East Coast assets, says utility's chief executive

US utility Eversource shed a revealing light on the reasoning behind its announcement of a “strategic review” of its joint venture (JV) with global offshore wind developer Orsted during its first-quarter earnings call – it could be a simple matter of the numbers adding up.

CEO Joe Nolan disclosed that selling its offshore wind assets now could garner a windfall equivalent to actually seeing the projects through to commercial operation, but with none of the risks, while the proceeds would be better deployed in its core business of onshore power transmission and distribution.

The move initially surprised the market, given that the record-setting $4.37bn auction for offshore wind acreage in the New York Bight is widely interpreted as a ringing endorsement for the industry’s prospects, and Eversource’s relatively strong financials. The company’s first quarter earnings were up 20% year on year, from $366m to $443.4m, buoyed by higher revenue in power transmission and natural gas distribution.

“You’re selling an asset that you don't need to sell, even though you also don't have an immediate need in funding?” one analyst on Eversource’s earnings call asked. “What is the strategic narrative?”

Nolan replied: “This strategic review is designed to de-risk this business.”

Eversource bought a 50% stake in Orsted’s South Fork, Sunrise, and Revolution wind projects in 2019 for $225m in what was seen as a risky bet at the time.

“Given the strong interest for offshore wind assets, [through a potential sale], we will be able to replace the offshore wind earnings per share that we would realise after our larger [planned] projects reached commercial operation.

“Many energy and infrastructure firms and investors, both inside and outside North America are extremely interested in investing in the northeast US offshore wind market,” he added. “The extremely strong prices paid for New York Bight leases in February attest to this.”

Eversource’s maths point to the projects' asset values now being equal in the value of the power it will one day generate, and its sale would save it the risk of actually developing and operating the projects.

Risks abound in the industry. The US is aiming for 30GW of offshore wind capacity by 2030, in less than eight years, from a base of 42MW, and won't see any more steel in the water until next spring, when both Vineyard Wind and South Fork, one of the JV's projects, enter offshore construction.

Inadequate marshalling capacity, global supply chain shortages, and a lack of US-flagged vessels and trained workers all threaten to drive up costs and cause lengthy delays, not to mention the threat of litigation stopping a project outright. The costs of Vineyard Wind have already ballooned from an estimated $2.6bn to over $4bn.

Eversource wouldn't abandon the industry, however, but would instead shift its focus to onshore transmission, where it is already a key player in the New England, with 4.4 million power, natural gas and water customers in southern New England.

Massachusetts, Rhode Island and Connecticut have a combined 7GW of mandated offshore wind demand by 2035, all of which will drive investment into onshore grids.

The company is already involved in offshore wind grid upgrades, and has petitioned the Federal Energy Regulatory Commission (FERC) for approval to upgrade its 345kV transmission system on Cape Cod, Massachusetts to absorb Avangrid’s Park City Wind’s 804MW.

“The needs in offshore wind for terms of interconnection are extraordinary,” Nolan said. “That's what we're very, very good at. And we're going to play to our strengths.”

Investments into onshore transmission assets for the overall offshore wind industry would be offset by earnings realised from the potential sale of Eversource’s offshore wind assets, allowing the company lower financing requirements.

Orsted buy-out?

The “more than $18bn five-year regulated capital investment programme that needs to be financed, and additional capital projects that are likely to arise in the coming years” have prompted the company to “conclude that now is an appropriate time to explore monetisation of our offshore wind investments”, Nolan told the analysts.

Nolan declined to answer a question on whether Orsted might buy Eversource out of the JV, citing confidentiality, but added that the terms of the partnership were flexible and did not impede the company from sale of all or part of the project.

“Our flexibility is great, and our ability to make decisions on all our parts are very flexible. We are not handcuffed in any way.”

He did say that the company is not considering a partial sale, however,

“I don't think it would make any sense for a partial,” Nolan said. “If the number is right on a full [sale], then we will make that decision and we will exit it.”

While Eversource and Orsted may eventually part ways, their chief executives share an equally dim view of the US sector's market dynamics in light of the extravagant prices paid in the New York Bight.

“Everybody knows how disciplined we are in terms of our investments, and we have to remain disciplined,” he said. “If you're going to bring a significant number of undisciplined folks into this equation, then that's really not a place for this company.”

 


Source:https://www.rechargenews.com/…

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