Orsted sells 50% stake in UK wind farm for $6 billion to Apollo
![Item 1 of 2 A view of turbines at Orsted's offshore wind farm near Nysted, Denmark, September 4, 2023. REUTERS/Tom Little/File Photo [1/2]A view of turbines at Orsted's offshore wind farm near Nysted, Denmark, September 4, 2023. REUTERS/Tom Little/File Photo Purchase Licensing Rights, opens new tab](/_next/image?url=https%3A%2F%2Fwww.reuters.com%2Fresizer%2Fv2%2FNXWB27XKQVJP7IZLGGAIB2AXDI.jpg%3Fauth%3Dabc4980fffe834407a4de4c2e460cf2bf0045392f61f13df2c678ceb7867a0f2%26width%3D1200%26quality%3D80&w=1920&q=75)
News Summary
Denmark's Orsted announced on Monday that it has agreed to sell a 50% stake in its Hornsea 3 offshore wind farm in Britain to Apollo Global Management for approximately $6.09 billion. This divestment is widely regarded as a crucial move for Orsted to prevent a crippling credit rating downgrade. Orsted, the world's largest offshore wind developer, is grappling with rising costs from supply chain disruptions and inflation, alongside uncertainty stemming from U.S. President Donald Trump's opposition to renewable energy. The Hornsea 3 project, valued at 8.5 billion pounds, is expected to be the world's biggest offshore wind farm upon completion in 2027, capable of powering over 3 million British homes. Apollo's investment covers a 50% stake and a commitment to fund 50% of the project's remaining construction costs. Orsted previously raised $9.4 billion through a rights issue and announced plans to cut about a quarter of its workforce by the end of 2027.
Background
Orsted, despite its leading position in offshore wind, has recently faced significant financial headwinds. Global supply chain disruptions, rising raw material costs, and inflation have substantially increased project construction expenses, eroding profitability. Additionally, escalating interest rates have heightened financing pressures. In response, Orsted has implemented several measures, including raising $9.4 billion through a heavily discounted rights issue in October 2023 and planning to cut approximately a quarter of its workforce by the end of 2027. The company also canceled certain high-cost projects, such as Hornsea 4, incurring losses of up to 5.5 billion Danish crowns. The re-election of U.S. President Donald Trump and his administration's explicit opposition to renewable energy further exacerbates policy uncertainty for the sector globally, particularly within the American market.
In-Depth AI Insights
What does Orsted's divestment strategy signal for the future of large-scale renewable energy projects, especially amidst macroeconomic and political headwinds? Orsted's move signals a shift in the development model for large-scale renewable energy projects, moving from full ownership towards capital recycling and risk-sharing. - Given the high capital intensity, rising interest rates, supply chain volatility, and political uncertainty from the Trump administration, it's becoming increasingly challenging for major developers to bear the immense risks alone. - This model helps developers de-stress balance sheets and ensure project completion, but it may dilute the potential upside for future projects. - Investors should observe if this partnership model becomes the new industry norm and its long-term implications for project returns and industry valuations. What is Apollo's strategic rationale behind this significant investment in a long-term offshore wind asset, particularly in the current environment? Apollo's investment reflects its pursuit of long-term stable cash flows from infrastructure assets and likely capitalizes on Orsted's urgent need for capital. - Offshore wind projects typically offer long-duration, regulated, or contractually supported revenue streams, aligning with infrastructure funds' preference for stable, predictable returns. - The UK's strong commitment to renewables provides a relatively stable policy environment, which is particularly attractive during periods of increased uncertainty. - Apollo likely secured attractive terms, diversifying its asset portfolio and potentially hedging against inflation. How might the re-election of President Trump and his administration's stance on renewable energy impact global investment flows and policy certainty in the sector? While primarily focused on the U.S., the Trump administration's opposition to renewable energy creates a global chilling effect, exacerbating policy uncertainty. - This stance reduces global investor confidence in renewable energy projects, especially within the U.S. market, potentially leading to higher capital costs. - Developers may be compelled to prioritize regions with strong, consistent government support (like the UK and EU), leading to a regional divergence in investment flows. - In the long run, this will push industry players to emphasize diversified geographical strategies and robust risk management to navigate varying national policy environments.