Ørsted admits overestimating output, downgrades long-term targets

UPDATED: Ørsted has downgraded its potential profit from seven offshore wind projects won in competitive tenders after admitting it overestimated production forecasts across its portfolio.

Ørsted has downgraded its targets following offshore output falling short of forecast

It reduced its targeted "unlevered lifecycle" internal rate of return (IRR), capacity-weighted for seven of its wind farms from 7.5-8.5% to 7.0-8.0%.

After analysing "a long list of variables" to better understand its production forecasts, Ørsted concluded its current production forecasts underestimated blockage effect — wind speed slowing as it approaches turbines — and wake effect.

The lower-than-expected production figures prompted the developer to revise its expected potential profit for seven projects.

These are the Borssele I & II projects off the Netherlands, Hornsea 2 off the UK, German Cluster 1 and Gode Wind III & IV off Germany, Greater Changhua 1 & 2a and 2b & 4 off Taiwan, and Revolution Wind off the US.

Orsted sounded a more positive note with its report of "higher-than-budgeted availability on one of our newer wind turbine platforms, which positively impacts some of our assets".

Industry issue

Ørsted CFO Marianne Wiinholt said the output overestimation was an "industry-wide issue".

"The reason why we believe so is that we have, for many of our wind farms, benchmarked our production estimate up against external consultants’ estimates," she said.

"In general, we have not been over these estimates. We have been marginally lower.

"The other reason is that the wake models that we have been using are, to a large extent, used by other parts of the industry."

Ørsted also attributed the downgraded IRR to the 6% reduction of the feed-in tariff and cap on full-load hours for its 900MW Changhua 1 & 2a projects in Taiwan, and a raised capital expenditure (Capex) estimate for the Deepwater development portfolio in the US "mostly related to transmission assets".

Winholt added that the downgraded IRR for seven of its wind farms should not be overstated.

"Not to talk it down, but it shouldn’t be exaggerated. t’s a small adjustment of production estimates," she said.

Ørsted also reduced the lifetime load factor for "a defined offshore wind portfolio and construction and development projects" from 48-50% to 48% due to the adjustment of its production forecasts.

However, other long-term financial targets announced at its Capital Markets Day in November 2018 remain unchanged.

These include its annual growth in site earnings before interest, taxation, depreciation and amortisation (Ebitda) of about 20% for 2017-2023, its average return on capital employed of about 10% for 2019-2025, and its share of contracted and regulated Ebitda of around 90% for 2019-2025.

Nine months

As well as downgrading its long-term outlook, Ørsted also reported its financial results for the first nine months of 2019. 

Pre-tax profit (Ebitda) was up 19% year-on-year to DKK 12.9 billion (€1.7 billion). The company is targetting full-year Ebitda of DKK 16-17 billion. 

"We had a very strong third quarter with high wind speeds and ramp-up generation from new wind farms," said Ørsted CEO Henrik Poulsen.