Ørsted, a Danish energy giant, has announced a significant reduction in its investment programme, cutting DKr270bn down to between DKr210bn ($29.1bn) and DKr230bn for the 2024 to 2030 period. This decision, despite meeting full-year expectations, underscores the challenges plaguing the renewable industry, particularly in the US offshore wind sector. The company cited increased pressure on credit metrics as a driving factor. Ørsted’s pivot towards a more value-focused capital allocation strategy aims to strengthen its balance sheet and maintain a solid investment grade rating. The company will finance its plan through operating cash flow, partnerships, divestments, tax equity, and debt and hybrid issuances, avoiding the need for new equity. This strategic shift is expected to improve credit metric projections.
Ørsted’s revised plan includes an EBITDA (excluding new partnerships and cancellation fees) projection of DKr25 to DKr28bn for 2025, and DKr29bn to DKr33bn by 2026. The company also anticipates an average return on capital employed (ROCE) of 13% during the same period. Despite the reduction, Ørsted remains committed to executing its construction projects and divestment programme, with a focus on geographies and technologies offering the highest value-creation potential. The company’s efficiency programme will drive further cost savings, building on the DKr1bn plan implemented in 2024.
The decision to scale back investments follows a challenging year for Ørsted. In 2024, the company reported an EBITDA of DKr24.8bn (excluding new partnerships and cancellation fees), commissioned 2.4GW of renewable capacity, and was awarded 3.5GW of offshore wind capacity in the UK. Notably, Ørsted made the final investment decision on the Baltica 2 offshore wind farm in Poland. This strategic move ensures that Ørsted maintains its position as the global leader in offshore wind.
Ørsted’s decision to prioritise capital allocation to high-value opportunities and maintain its construction commitments signals a strategic response to market challenges. The company’s efficiency programme and focus on high-value geographies and technologies will be crucial in navigating the current market landscape. This approach may influence other players in the renewable energy sector, particularly those facing similar challenges. As Ørsted’s actions demonstrate, the renewable energy sector is evolving, with companies adapting to market pressures by refining their strategies and focusing on financial prudence.
The offshore wind industry, in particular, is grappling with rising costs, supply chain issues, regulatory shifts, and low margins. Ørsted’s decision to scale back its investment programme comes amid similar moves from other major players like Equinor, BP, and Shell, all of which are reducing their offshore wind expansion targets. This trend highlights a broader industry shift towards caution and strategic investment, rather than aggressive expansion.
The news of Ørsted’s scaled-back investment programme could reshape the renewable energy sector. Other companies may follow suit, leading to a more cautious approach to expansion. This could result in a more stable market, with companies prioritising profitability and financial health over rapid growth. The focus on high-value opportunities and efficiency programmes could drive innovation and cost savings, potentially making renewable energy projects more sustainable and attractive to investors. However, this shift could also slow down the pace of renewable energy deployment, posing challenges for countries aiming to meet ambitious climate targets. The industry will need to balance the need for financial stability with the urgency of transitioning to renewable energy sources.
