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Company halts development of 2 US offshore wind projects

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Wind firms hit by higher interest rates, supply chain problems

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Shares drop as much as 22%

(Adds White House comment in paragraphs 7 and 8)

By Jacob Gronholt-Pedersen

Nov 1 (Reuters) - Renewable energy firm Orsted on Wednesday halted the development of two U.S. offshore wind projects and said related impairments had surged above $5 billion, as the industry grapples with supply chain delays and higher costs.

Orsted, the world's largest offshore wind developer, said it would stop developing its 2,248-megawatt (MW) Ocean Wind 1 and 2 projects in New Jersey. Related impairments could amount to as much as 39.4 billion Danish crowns ($5.58 billion).

Its stock plunged as much as 22% to a six year low of 265 crowns.

The offshore wind industry has found itself in a perfect storm of rising inflation, interest rate hikes and supply chain delays, casting doubt on plans by U.S. President Joe Biden and several states to use offshore wind to replace fossil fuels in energy production to fight climate change.

On Tuesday, energy major BP booked a third-quarter writedown of $540 million on wind projects after officials in New York state rejected a request for better terms to reflect what BP called "inflationary pressures and permitting delays".

Norway's Equinor, BP's partner on those New York offshore wind developments, booked a $300 million impairment on the projects on Friday.

The White House on Wednesday said it is committed to supporting the nascent U.S. offshore wind industry despite the recent challenges, and cited billions of dollars worth of incentives included in the administration's signature climate law, the Inflation Reduction Act, last year.

"While macroeconomic headwinds are creating challenges for some projects, momentum remains on the side of an expanding U.S. offshore wind industry," White House spokesperson Michael Kikukawa said.

Orsted flagged in August it could see U.S. impairments of 16 billion crowns due to supply chain issues, soaring borrowing costs and a lack of new tax credits.

On Wednesday, the Danish company raised that number to 28.4 billion crowns and said provisions relating to the cancellation of the two projects would amount to between 8 billion and 11 billion in the fourth quarter.

The company said it had invested significantly at an early stage in Ocean Wind 1, the most advanced of the two projects.

"It is without a doubt proven that this was the wrong decision," Chief Executive Mads Nipper told journalists.