Shares in global offshore wind market leader Orsted fell sharply after it warned that key production forecast models for its turbine fleet could underestimate the impact of several negative factors, and flagged a cost-reduction drive including job cuts.
The company’s shares fell 8% soon after release of a market update at lunchtime on Tuesday, with other listed players in the wind power sector also showing reverses after Orsted warned of potential industry-wide implications.
Orsted said an internal project to better understand long-term production variables “has led us to conclude that our current production forecasts underestimate the negative impact of two effects across our asset portfolio, the blockage effect and the wake effect”.
The blockage effect relates to the slowing of wind as it approaches the turbine, while the wake effect is the impact of wake between and within wind farms.
Wind forecasts ‘biased’ as blockage ignored, warned DNV GL
Orsted – the world’s biggest operator of offshore wind, active in Europe, Taiwan and the US – said: “We believe that underestimation of blockage and wake effects is likely to be an industry-wide issue.
“While there is still uncertainty involved, it is clear that the production forecast adjustment arising out of our analysis has a negative effect on our financial estimates.”
The Danish group dropped targeted unlevered lifecycle returns from 7.5-8.5% to 7.0-8.0% from seven projects it won in competitive tenders: Borssele 1&2, Hornsea 2, German Cluster 1, Gode Wind 3&4, Greater Changhua 1&2a, Greater Changhua 2b&4 and Revolution Wind.
It added: “Lifetime load factor of 48-50% for a defined European offshore wind portfolio and construction and development projects is reduced to around 48% due to the adjustment of production forecasts.”
Orsted also warned investors of a negative impact from the lower feed-in tariff it has had to swallow in Taiwan, and said it “has raised Capex estimate for the Deepwater development portfolio in the US, mostly related to the transmission assets”.
Orsted said it now plans to save DKr500m-600m ($74m-90m) between 2020 and 2022, half of which “will come from reductions across our staff functions, both internal and external spend”.
News of the forecast revision prompted Orsted to release its third-quarter financial results earlier than expected. It said these were in line with expectations, with earnings from operating wind farms up 35% and quarterly net profit up DKr1bn to DKr1.45bn.
Note: Update adds further details.