Ørsted’s bailout and the Sunrise Wind Farm

On 11^th August 2025 Ørsted, the largest offshore wind operator in the world, announced an emergency rights issue to raise $9.3 billion in new capital from the Danish Government (the majority shareholder) and other shareholders. The immediate impact was a drop of nearly 30% in its share price. In effect, the capital transactions is a bailout by the Danish Government accompanied by a heavily discounted injection of new capital by banks and other shareholders. In explaining the need for this capital, Orsted has highlighted the cost of building Sunrise Wind development off the coast of Long Island. This project, with a planned capacity of 924 MW, started construction in June 2024 and is due to be fully commissioned in 2027.

In 2024 I wrote several articles, including one published in the Wall Street Journal, which examined financial and economic aspects of offshore wind projects in the US Atlantic Coast region from Massachusetts to Virginia. Based on a detailed financial model, I argued that, on the terms agreed by New York State with developers, two projects off Long Island in New York State (Empire Wind 1 and Sunrise Wind) are likely to earn very high rates of return for equity investors.

The article focused on the Empire Wind 1 project, which at 810 MW is slightly smaller than Sunrise Wind. It is controlled by Equinor, the Norwegian state-owned oil and gas company. Empire Wind is also under construction with a similar timeframe as Sunrise Wind. It has a slightly higher guaranteed price - $155 per MWh for Empire Wind, $146 per MWh for Sunrise Wind – but in broad terms the two projects are very similar.

I have adjusted the assumptions in my financial analysis of the Empire Wind project to reflect the circumstances of the Sunrise Wind project. The main change is to allow a slightly higher capital cost - $5.75 million per MW of capacity. This is 25% above the estimated cost of the Moray West project in NE Scotland to allow for (a) the limited supply chain for building offshore wind farms on the US Mid-Atlantic region, and (b) the requirements that must be met for the project to be eligible for a 40% investment tax credit.[1]

On this basis the total cost of the Sunrise Wind project will be about $5.3 billion. Ørsted’s spending on it up to end-June 2025 is likely to be about $1.9 billion including development costs. If the remaining project expenditures will be financed entirely by the company, the spending would account for about $3.4 billion of the $9.3 billion that it expects to raise. The impression given by the company’s statements imply that the financing requirements of Sunrise Wind account for more than 50% of the funds raised.

The figures highlight an unusual feature of the financial structure of Sunrise Wind. In the case of the Moray West project, the owner Ocean Winds raised roughly £2.3 billion in debt finance, amounting to just over 75% of the total capital cost of the project.[2] Assuming a 75:25 debt-equity structure with an average nominal interest rate of 6% for debt and a post-tax discount rate of 8% for equity, the net present value over 25 years (the length of the offtake contract) of the Sunrise Wind project is close to $1 billion. This allows for an investment tax credit of 40% spread over 4 years.

If Ørsted had adopted this financial structure, its initial financial commitment would have been about $1.4 billion. It could have recovered this investment by selling 75% of the project equity in year 2 of the project’s operation, i.e. once the initial commissioning period was complete and the project’s performance verified.

However, it appears that the company adopted a riskier financial strategy. From the briefings given to various journalists it appears that it planned to finance all of the project’s capital spending from its own resources. It expected to refinance the project alongside selling a large share of the equity after completion. This strategy might pay off if (a) the removal of construction risk would allow either higher gearing or lower borrowing costs, or (b) interest rates in, say, 2028 were significantly lower than those available in 2024. This seems to have been mainly a gamble on interest rates. However, the company claims that its expected profit from selling on the project after completion had been reduced by provisions in the recent US One Big Beautiful Budget Act.

Ørsted’s public justification for needing to raise more equity makes little sense. The decision to rely on equity to fund the Sunrise Wind project must have been made some time in 2024, so the company knew that it had a commitment to spend at least $5 billion from its own resources between mid-2024 and mid-2027. Clearly, something changed between mid-2024 and mid-2025 which forced them to raise new equity as an emergency measure.

There seem to be two possibilities. First, the costs of developing Sunrise Wind have turned out to be much higher than originally assumed. Even so, the cost overrun would have to be truly enormous to warrant the scale of the bailout required. If that were true, then one would expect to observe signs of distress from Equinor for the parallel Empire Wind project. Its financial resources are greater than those of Ørsted, but sections of the Norwegian academic community and public have doubts about the wisdom of a state oil company committing such large resources to offshore wind.

Second, Ørsted’s broader financial strategy is collapsing. For some time, a large share of the company’s profits has rested on two pillars. One is generating operating profits from a combination of operating charges and electricity trading for its portfolio of offshore wind farms in Europe. The second is capital gains made by selling equity stakes in its wind farms. It appears to have a consistent practice of reducing its equity stake in operating wind farms to 25% by selling project equity to passive investors – pension and infrastructure investment funds – to finance its equity in new projects.

Under stock market rules, one would expect the company to declare a major trading loss if this had prompted the company to raise new equity. Profits from operating contracts should not deteriorate so quickly as to require a bailout. This is the classic type of stable revenue which can be used as security for debt finance.

My inference – and the public evidence is very sparse – is that the real problem is Hornsea 3, a huge 2.9 GW wind farm in the North Sea close to Ørsted’s completed Hornsea 1 and Hornsea 2 projects. The company had planned for a further 2.4 GW Hornsea 4 project, which was awarded a CfD contract in September 2024, but in May 2025 it announced that it had cancelled development of the project on grounds of rising construction costs and interest rates. In effect, it was signalling that the CfD contract at a strike price of £84.97 (at 2025 prices) per MWh was much too low for the project to be viable.

The expected cost of Hornsea 3 has been reported as up to £11 billion. At £3.8 million per MW of capacity that cost estimate is probably a bit low. The completed cost of Moray West was about £3.5 million per MW, and inflation in the supply chain over the has been significant over the last 2-3 years. In addition, the debt finance raised to cover the cost of the Hornsea 3 is very limited. I can only find public statements of under £600 million plus funding related to an associated battery storage facility. In addition, Ørsted has announced that it wants to sell up to 50% of the equity in the Hornsea 3 project with a project valuation of £8.5 billion. Presumably, this excludes the cost of the offshore transmission lines which will be transferred to an Ofto after the project is completed.

The central problem with Hornsea 3 is that Ørsted accepted CfD contracts at an absurdly low strike price of £48.69 per MWh (at 2025 prices) for 2.85 GW of capacity in bidding round AR4 at the height of the offshore bubble in 2022. In 2024 it was allowed to withdraw and rebid 25% of that capacity at the higher AR6 strike price of £78.27 per MWh (at 2025 prices).[3] When these prices are compared with the strike price that was regarded as unviable for Hornsea 4, it seems very likely that the Hornsea 3 project is a severe drain on the company’s cash resources, which it may be reluctant or unable to exit.

One lesson for energy policy that should be drawn from Ørsted’s problems concerns the hype about offshore wind – and other types of renewable generation – becoming ever cheaper. Such nonsense should be buried permanently. The price of $146 per MWh awarded to Sunrise Wind was four times the average wholesale price of power in New York City during 2023-24. The project will receive an investment tax credit that is worth about $1.8 billion in present value terms or the equivalent of $56 per MWh – i.e. the offtake price would have to be $202 per MWh to earn the same return without the investment tax credit. That translate to almost £150 per MWh at the current exchange rate.

Even if US costs are inflated due to (a) an underdeveloped supply chain, and (b) the restrictions required to qualify for the tax credit, the guaranteed price would still need to be at least £120 per MWh on a long-term basis, far above the expected level of wholesale prices in the US Mid-Atlantic region.

The failures of two auctions in Germany in 2025 offering leases for the development of offshore wind farms but only for merchant generation – i.e. without guaranteed prices and subsidies – reinforce the same point. Transmission arrangements in Germany are extremely favourable for offshore wind as transmission capital and operating costs are borne by transmission operators rather than generators. But even in such a system, offshore operators are clearly unwilling to risk making large investments that rely either on either wholesale market prices or corporate power purchase agreements.

A second lesson for energy investors and financiers is that offshore wind is an extremely risky business. Ørsted is a clear example of the “winner’s curse” for auctions, which is all too familiar in the oil and gas sector as well as telecommunications. That is one reason why the sector is increasingly dominated by large oil and gas companies, motivated in part by a desire to add a green tinge to their operating portfolios, and by electricity companies that can offset large project risks against stable revenues from network businesses.

While the company can survive as a specialist operating business, there must be considerable doubt about what kind of future it has as a large project developer. It has some protection with the Danish state as majority shareholder, but even Vattenfall, a company that is 100% state-owned and has a large network business, decided to pull back by cancelling its Norfolk Boreas project, which was also awarded a CfD contract in 2022. It is not clear that, at current offtake prices, offshore wind projects make much financial sense other than on unusually favourable transmission and other ancillary terms or for companies with strong non-financial reasons for participating in the sector.

Finally, for energy policymakers the conclusion must be that the real cost of power from offshore wind is likely to increase in future as investors become more cautious. Subsidy auctions, such as the forthcoming AR7 CfD auction in the UK, may be declared a “success” but what matters is whether the projects go ahead and on what terms. There may be lots of hoo-ha when auction results are announced. That is little more than PR and reflects reporting by journalists, many of whom are financially illiterate, in outlets that are little more than industry lobbyists. The attention given to later or hidden changes in conditions, such as changes in the allocation of balancing costs, is much less.

The stated goals of governments in Europe to increase offshore wind capacity far exceed the amount of capital that is available from operators and investors. The bailout required by Ørsted is a warning for all participants in the market. Consequently, the amount of competition for new projects is likely to decline and the lead times required for implementation will increase. The costs of new capacity will be higher and, setting aside the usual appeal to the grandstand, the rate at which offshore wind replaces conventional sources of generation will be smaller.

[1] I have used Moray West as the comparator in this article because the project is very similar in size (882 MW) and other characteristics to Sunrise Wind. Construction was completed in early 2025 and it was formally commissioned in April 2025. There is a reasonable amount of information available in the public domain on its financial structure. Moray West is owned and operated by Ocean Winds, which is a consortium owned by EDP and ENGIE (formerly GDF Suez) - two large energy companies with experience in the offshore sector.

[2] The leader of the lending consortium for Moray West was BNP Paribas which has issued an extended statement on the main financial package used to fund the project. Unlike the Sunrise Wind project, only a part of the offtake from the Moray West project is covered by a state guaranteed price, so that the debt is secured against what is referred to as a “revenue stack” of corporate power purchase agreements.

[3] The numbers given on CfD Register of the Low Carbon Contracts Company don’t make sense as they claim that Ørsted has 4 CfD contracts for Hornsea 3 – one for 2,146 MW at the original AR4 strike price, and 3 for 360 MW each at the AR6 strike price.