Morningstar rating for Ørsted
- Fair Value Estimate: DKK 400.0
- Morningstar Rating: ★★★★★
- Morningstar Economic Moat Rating: None
- Morningstar Uncertainty Rating: Medium
Reduces estimated fair value in wake of growing risks in US Offshore Wind
Equinor announced on April 17 that it halted the construction of its 810-megawatt Empire Wind project off the New York coast in accordance with an order issued by the US government. The company stated that it is exposed to termination fees in case of a full stop scenario.
Why it matters: Even offshore wind projects under construction with full federal approval are not insulated from the whims of the Trump administration. This implies a negative read-across for Orsted’s two offshore wind projects under construction in the US, 0.7-gigawatt Revolution Wind and 0.9 GW Sunrise Wind.
- The Sunrise Wind project off the New York coast is more at risk. Its construction started at the same time as Empire Wind in July 2024, while Revolution Wind’s construction started in August 2023. The latter is 60% completed, according to Orsted.
The bottom line: We cut our fair value estimate by 13% to DKK 400 per share from DKK 460. Our new fair value estimate still offers material upside, but we do not expect a rebound until US uncertainties are resolved.
- We assume that Sunrise Wind will be halted by the US government and eventually ditched. We reckon that Orsted will have to pay DKK 5.4 billion in termination fees (DKK 4.1 billion after tax) to its suppliers.
- We raise our weighted average cost of capital from 6.5% to 9% for Revolution Wind to account for higher US risk. We raise our WACC from 6% to 6.5% for projects in operation.
Coming up: Equinor is considering legal remedies, including appealing the order.
Between the lines: We derive our termination fee estimate from the 1.1 GW Ocean Wind 1’s DKK 7.6 billion termination fees and by assuming that Sunrise Wind was 15% complete versus 0% for Ocean Wind 1.
Key stats: The cancellation of Sunrise Wind would drive an impairment of its DKK 2 billion book value that would have a noncash impact, unlike the termination fees. We previously assessed a nil value for Sunrise Wind.
Business strategy and outlook
With 9.9 gigawatts of gross offshore wind capacity and 5.3 GW of net capacity at the end of 2024, Orsted is the leader in offshore wind, an industry that it pioneered in the 1990s.
With around 80% of its EBITDA coming from offshore wind farms, Orsted has a unique business mix among European utilities and pure renewables players. These farms have a young weighted average age of 7 years.
Generous subsidies granted to wind farms in operation have a weighted average lifetime before expiration of around 10 years.
These high subsidies are evidence of the benefits of being an early mover in Europe. As subsidies have declined in Europe, Orsted aims to expand into new markets. This involves higher risks as evidenced by the issues encountered in the United States, where the group is the leader with 5 GW of awarded projects. Because of the sharp rise in construction costs and interest rates since 2021, all the projects turned out to be value-destructive.
Consequently, Orsted only sanctioned the 0.7 GW Revolution Wind and 0.9 GW Sunrise Wind projects. It ditched the Ocean Wind 1 and 2 projects totaling 2.25 GW of capacity in November 2023, which drove more than DKK 36 billion of impairments and cancellation fees. To shore up its balance sheet after these setbacks, as it has to fund future projects like the giant Hornsea 3, Orsted suspended its dividend over 2023-25 and increased its divestment targets while reducing its investments.
In early 2025, Orsted booked an additional DKK 12.1 billion of impairments on its US projects and further reduced its investments after the departure of CEO Mads Nipper, appointed in January 2021.
After Equinor’s Empire Wind offshore wind project under construction off the New York coast was halted by the US government in April 2025, we assume that Sunrise Wind will also be halted and eventually be ditched.
As competitive pressures were mounting in offshore wind, Orsted has rebalanced its ambitions toward onshore wind and solar in 2021 with a focus on the US. Consequently, the onshore contribution to EBITDA grew from 6% in 2020 to 16% in 2024.
ORSTED Bulls Say
- The hike of the ceiling price for 2024 UK offshore wind auctions and the extension of capital allowances are positive for the largest offshore wind market in the world, outside of China, where Orsted is the leader. The capital allowances will increase the value creation of Hornsea 3.
- Orsted is very favorably exposed to a decline in interest rates.
- The indexation to inflation of the revenue of the UK offshore wind farms supports earnings.
ORSTED Bears Say
- The funding of investments hinges on material divestment including the farm-down of Hornsea 3. Failing to deliver them could force Orsted to resort to a rights issue.
- Revolution Wind and Sunrise Wind are at risk of being halted after Equinor’s Empire Wind.
- Higher interest rates for longer would be a drag on the share price.
Fair Value and Profit Drivers
We cut our fair value estimate by 13% to DKK 400 from DKK 460 by
1) assuming that Sunrise Wind will be halted by the US government and eventually ditched, leading Orsted to pay DKK 5.4 billion of termination fees (DKK 4.1 billion after tax) to its suppliers,
2) raising our WACC estimate from 6.5% to 9% for Revolution Wind to account for higher US risk and from 6% to 6.5% for projects in operation, and
3) incorporating the recent depreciation of the US dollar against the Danish krona. Our new fair value estimate implies a 2025 enterprise value/EBITDA of 12.2 times and price/earnings of 30 times.
We forecast a 2024-29 compound annual growth rate of 4.9% for underlying EBITDA. Key drivers will be the commissioning of new onshore and offshore capacity.
We project EBITDA to grow by 4% to DKK 25.8 billion in 2025, within DKK 25 billion-DKK 28 billion guidance. Key growth drivers will be the ramp-up of generation of offshore wind farms Greater Changhua in Taiwan, South Fork in the US, and Gode Wind 3 in Germany and better earnings from existing partnerships that were hit by high costs of operating the transmission assets in 2024. Those tailwinds will largely offset higher development and operating costs.
In 2026, we project EBITDA to grow by 15% to DKK 29.2 billion, at the lower end of DKK 29 billion-DKK 33 billion guidance due to our expectation that Revolution Wind will be commissioned in 2027 versus the second half of 2026 targeted by Orsted.
Our DKK 207 billion gross investment forecast over 2024-30 is below the DKK 210 billion-DKK 230 billion guidance due to our assumption that Sunrise Wind will be ditched and that inflation will be a bit above what the group is expecting.
