Transactions details: In two separate announcements on May 25th, Orsted and RWE announced that they will assume 100% ownership of certain early-stage offshore wind projects in the US and Europe, respectively. Orsted will buy out partner Eversource’s 50% stake in 4 GW of leases offshore New York in a $625mn agreement. Meanwhile, RWE has taken over Northland Power’s 49% in the ~1.6 GW Nordseecluster (NSC) in the German North Sea, for a cash consideration of $37mn.
Project details: Orsted has acquired the OCS-A 500 lease area comprising ~187,000 uncontracted acres of seabed, also known as Bay State Wind. The lease area was awarded in 2015 as part of a competitive solicitation. Meanwhile, RWE’s NSC comprises two phases, which are expected to be brought online in 2027 and 2029. For the second 900 MW phase, RWE plans to exercise step-in rights in the offshore wind auctions occurring this year.
Deal rationale - sell side: For Eversource and Northland Power, the deals represent efforts in portfolio rationalization, albeit with differing objectives. Eversource announced last year that it is reviewing the sale of its offshore wind portfolio amid cost inflation and supply chain bottlenecks. With the recent deal, the company reiterated that it will exit offshore wind power generation activities entirely by pursuing the sale of its 50% stake in three other wind projects owned jointly with Orsted - South Fork Wind, Revolution Wind and Sunrise Wind. The company will use the proceeds to pay down billions of dollars of debt due in 2023, and will also focus on the development of offshore wind transmission assets. Meanwhile, Northland Power stated that the NSC was no longer financially consistent with its investment approach, with the higher than expected costs only being partially offset by higher revenues from off-take due to elevated electricity prices. The company will continue to progress on its ongoing offshore wind initiatives in the UK and Germany.
Deal rationale - buy-side: For Orsted and RWE, the acquisitions will lead to synergies with existing developments in the region. The location of Orsted’s Bay State Wind lease also enables it to supply power to four markets - Massachusetts, Rhode Island, Connecticut and New York. Meanwhile, RWE’s NSC will be developed in close proximity to the existing 332-MW Nordsee One wind farm, which the company continues to operate jointly with Northland Power.
Going forward, Enerdatics believes that larger, more experienced developers will tap into similar opportunities created by leaner players exiting offshore wind developments. Companies like Orsted and RWE have the ability to efficiently develop cash intensive projects with long lead times, while simultaneously weathering challenges with regards to financing and supply chain, that continue to persist.
The above analysis is proprietary to Enerdatics’ energy analytics team, based on the current understanding of the available data. The information is subject to change and should not be taken to constitute professional advice or a recommendation.
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