Stop-work order for Orsted's Revolution Wind project surprises market

In a further blow to the US offshore wind industry and Danish developer Orsted, the 704-MW Revolution Wind offshore wind farm was issued a stop-work order on Aug. 22, which caused the company's stock to plunge on Aug. 25.

Work at the wind farm, located around 15 miles south of the Rhode Island coast, is already 80% complete, and an injunction was deemed unlikely at that point.

The US Bureau of Ocean Energy Management issued the injunction "to allow time for it to address concerns that have arisen" during a review conducted by the US Interior Department. The review follows President Donald Trump's Jan. 20 executive order to halt new offshore wind projects and identify potential legal bases for terminating or amending existing leases.

Concerns relate to protection of national security interests and potential interference with other uses of the sea in the area, BOEM said.

In response to the stop-work order, Orsted said on Aug. 23 that it is "evaluating all options to resolve the matter expeditiously," including engagement with permitting agencies and potential legal proceedings. The company's aim is to proceed with construction toward project completion in the second half of 2026, noting that 45 of the 65 planned turbines have already been installed.

Revolution Wind is fully permitted and has a 20-year power purchase agreement with the states of Rhode Island and Connecticut. Skyborn Renewables, part of Global Infrastructure Partners, owns 50% of the project.

Downbeat response

Investors were surprised by the news, with Orsted's stock dropping 17% after opening on Aug. 25. The stock had already reached a record low earlier in August after the company launched a DKr60 billion rights issue.

The rights issue was necessary due to what Orsted described as an "extraordinary and unprecedented" development in US offshore wind, the mid-April injunction on Equinor's 810-MW Empire Wind 1 project offshore New York.

Though the stop-work order was lifted about a month later, this development increased the perceived risk of the US offshore wind market significantly, thwarting Orsted's efforts to finance its 924-MW Sunrise Wind project.

"This is another setback for Orsted, and the US offshore wind industry. The question now is whether a deal can be struck to restart the project," analysts at Jefferies said in an Aug. 24 note. "The order has increased risks of further impairments and created a more challenging setup for Orsted's upcoming ... rights issue."

"Orsted is investing into American energy generation, grid upgrades, port infrastructure, and a supply chain, including US shipbuilding and manufacturing extending to more than 40 states," the company said. Revolution Wind is also already employing hundreds of local union workers, Orsted added.

Orsted's response to the stop-work order offers little comfort, the analysts said. In a best-case scenario, the stop-work order is lifted within a month and construction timelines remain largely intact. Even so, Jefferies analysts said they would expect to see further small impairments.

Credit rating implications

S&P Global Ratings on Aug. 14 lowered Orsted to BBB- from BBB with a stable outlook, pointing to major challenges for the company's project disposal strategy.

"We disagreed with S&P's downgrade ..., but with this stop work order, that move is now looking prescient, and it seems reasonable to believe Moody's and Fitch will follow suit," analysts at CreditSights wrote in an Aug. 25 note.

S&P Global Ratings analysts in their Aug. 14 note said they did not expect a stop-work order for any Orsted project. "If this would occur, it could have a material impact on Orsted's business model and credit ratios," they wrote.