Offshore

Eversource to record up to $1.6 billion after-tax impairment charge amid divestment effort

Eversource to record up to $1.6 billion after-tax impairment charge amid divestment effort
The first turbine is installed on South Fork Wind (Credit: Orsted)

They say letting go is the hardest part. You don’t need to remind Eversource, as it attempts to divest 50% ownership interest in three offshore wind projects.

Eversource said on Monday it would record an after-tax impairment charge, other than temporary, between $1.4 billion and $1.6 billion in the fourth quarter as a result of its wind investments. This range is an estimate and subject to change as Eversource prepares its financial statements for the 2023 year.

The energy company would incur a charge of about $800 million to $900 million on all three of its wind projects- South Fork Wind, Revolution Wind, and Sunrise Wind- owing to additional expenditures for construction and scheduling-related pressures.

As it searches for buyers, the company claims two factors are weighing on the potential sales price- supply chain constraints relating to the projects’ installation vessels and foundation fabrication and uncertainties related to the Sunrise Wind rebid process in New York’s current RFP issued on November 30, 2023.

Eversource currently holds its share of these three projects in two separate joint venture partnerships with Ørsted, one that holds only South Fork Wind and another that holds both Revolution Wind and Sunrise Wind. Eversource also separately holds a tax equity investment in South Fork Wind.

Eversource says it is in advanced, exclusive negotiations with a selected buyer, which is a “leading global private infrastructure investor,” to sell its ownership interest in these projects, although Eversource cannot assure that the parties will reach a final agreement on terms for this transaction.

“We are pleased to advance the sale of our offshore wind interests and are appreciative of the support and collaboration we continue to receive from Ørsted on this very complex transaction,” said Joe Nolan, Eversource’s Chairman, President and Chief Executive Officer.

Eversource said during Q3 2023 it identified “certain impacts” like increased construction costs and economic uncertainty that will require further adjustment to the carrying value of its offshore wind investments for the projects.

In October 2023, the New York State Public Service Commission denied petitions filed by a group of offshore wind developers and a state renewable energy trade association seeking billions of dollars in additional funding from consumers for four proposed offshore wind projects and 86 land-based renewable projects. In denying financial relief, the Commission said it opted to preserve the bidding process that provides renewable energy resources to New York in the fairest and most cost-effective manner.

The petitions denied were submitted by Empire Offshore Wind LLC and Beacon Wind LLC, Sunrise Wind LLC, and the Alliance for Clean Energy New York, Inc. (ACENY). The petitions were seeking an adjustment to Renewable Energy Credit (REC) and Offshore Wind REC (OREC) purchase and sales agreements entered with NYSERDA to address recent inflationary pressures that are impacting project economics.

Following this decision, the general terms of an expedited offshore wind renewable energy solicitation in New York were released, but a primary condition for Sunrise Wind to participate in the solicitation is to agree to terminate its existing OREC agreement, Eversource said.

These negative impacts and other developments described below required Eversource to evaluate its offshore wind business investments for an other-than-temporary impairment. If Sunrise Wind participates in the new RFP and is successful, Sunrise Wind would have 90 days to negotiate a new OREC agreement at the revised price. Eversource says it is working with Ørsted to determine whether to submit a new bid for Sunrise Wind, the price at which a new bid would be made, and the probability of success in the new bidding process. Based on these factors, the company expects to record an after-tax other-than-temporary impairment in the range of approximately $600 million to $700 million for Sunrise Wind in the fourth quarter of 2023.

Finally, Eversource said it continues to evaluate the value of investment tax credit (ITC) adders from the Inflation Reduction Act that were part of the sale price value offered by the buyer. The company says it is now “very confident” that the 10% ITC adder for sourcing construction of an onshore substation in a designated community is realizable. Thus, the company says relying on a high likelihood of realization of the energy community adder results in maintaining virtually all of the $400 million in value as part of the anticipated purchase price.

“Offshore wind projects continue to experience major supply chain disruption and inflationary challenges in the early stage of this growing industry in the U.S., and this impairment is an unfortunate reflection of the current market conditions we are facing,” added Nolan. “Eversource remains focused on advancing the efforts to decarbonize the energy sector and accelerate electrification with much-needed investments in transmission and other clean energy infrastructure through our regulated utilities.”

Eversource isn’t alone in feeling lost at sea in the U.S. offshore wind market. Last September, Dominion Energy announced it could sell an equity stake in its Virginia offshore wind project as part of an effort to reduce risk.

As part of a review of its regulated businesses, Dominion Energy CEO Robert Blue said adding a noncontrolling equity financing partner to the Coastal Virginia Offshore Wind project would, in part, help minimize the company’s external equity financing needs and support long-term stability.

Blue said the 2.6 GW project, located about 27 miles off the coast of Virginia Beach, is on budget and on schedule. The company already has a two-turbine pilot project up and running with the full 176-turbine wind farm expected to be placed in service in late 2026 or early 2027.

Many renewable energy sectors continued to grow in 2023, but it was a rough year for U.S. offshore wind. Just days into 2024, BP and Equinor announced the termination of Empire Wind 2, and several projects met a similar demise last year.

Common causes of cancellations include inflation and supply chain disruptions, caused in large part by the war in Ukraine. Developers often expressed openness to continuing projects under offtake agreements, but that sentiment seldom led to survival.