Blown off course: The challenge of predicting offshore wind earnings

Ørsted A/S adjusted its full-year EBITDA guidance on Sept. 5, 2025, with 1.2 billion Danish kroner (approximately $185 million) of adverse EBITDA impact attributed to "lower-than-normal offshore wind speeds across the offshore portfolio" in July and August. Construction delays at Changhua Orsted-2B Offshore Wind Farm were also expected to have a negative impact of approximately 300 million kroner. Despite the revisions to EBITDA, the company said that its medium-term targets were expected to remain unaffected.

This article examines Ørsted's offshore portfolio, cross-referencing that with European Centre for Medium-Range Weather Forecasts wind speed data for given latitude and longitude coordinates, similar to other monthly solar and wind index articles. This is then used as a springboard to discuss the wider issue of predicting wind farm operational and financial performance.

Ørsted's offshore assets are predominantly in Europe. According to S&P Global Market Intelligence data, 4,186.0 MW out of a global offshore portfolio of 4,923.6 MW, or 85.0%, sit in European waters. The rest of its offshore portfolio is almost entirely located in the Taiwan Straits, with the remaining 1.9% situated off the US coastline.

Looking at monthly and year-to-date wind speed data at Ørsted's European offshore assets, it is plain that July and August were poor months for wind speeds. In July, all 26 locations had negative monthly deviations from the 20-year norm, and seven had double-digit negative deviations. These included some of the company's major assets in the North Sea, in UK and Dutch waters, such as Hornsea I Offshore Wind Project (Njord), Hornsea II Offshore Wind Project and Borssele 1 & 2 Offshore Windpark, with monthly deviations of negative 12.0%, negative 10.5% and negative 11.0%, respectively. Together, owned capacity at these three assets comprises over 30% of the company's European offshore portfolio.

The fact that these heavy hitters had such significant deviations from the monthly norm pulled down the company's capacity-weighted average in the region. Ørsted's European offshore fleet experienced wind speed deviations of negative 8.1% in July and negative 6.7% in the year to July, with the latter metric impacted by the negative deviations in July.

Meanwhile, August presented a slightly improved picture. Five of Ørsted's offshore locations had positive deviations, mostly very slight, apart from two — Horns Rev I Havvindmøllepark and Horns Rev II Wind Offshore Wind Farm — which were up 7.3 and 7.6%, respectively. The European portfolio was still negative in the year-to-date metrics, but by a lesser amount for all but two of its assets.

If one widens the net to include owned capacity in the Taiwan Straits, thereby capturing 98.1%, rather than 85.0%, of the company's offshore portfolio, all the July and August metrics actually improve. For example, the July monthly deviation is negative 6.2% (not negative 8.1%) and the July year-to-date deviation is negative 5.7% (not negative 6.7%). August is up a percentage point to -0.2% and August year-to-date is up 0.8 percentage point.

Wind beneath whose wings?

Returning to the Europe-only portfolio, negative wind speed deviations in July were significantly more pronounced than in August. August wind speeds were close to normal, at only 1.2% below average, improving the year-to-date deviation from negative 6.7% to negative 6.1%. The year-to-date metric becomes increasingly important as the year progresses because there is less time for negative deviations to be righted. Conversely, positive deviations are more likely to remain intact.

Ørsted had a bad July in Europe, but it was not the only one. It is the capacity leader for offshore wind in Europe, but the next four ranked companies all had negative deviations that month. Both second- and third-placed Vattenfall AB and RWE AG had very similar monthly deviations, of negative 7.2% and negative 8.0%, respectively.

Comparing the monthly metrics for companies' European offshore portfolio versus those for their European combined offshore and onshore ones, it appears there is a strong correlation between wind speed deviation and the split between offshore and onshore. For example, the only company that had a positive deviation in July was Iberdrola SA's complete European portfolio, which has a significant 84.4% share of onshore wind.

This is confirmed by the case of Electricité de France SA, the only company in the top five of combined wind capacity that does not sit in the top five for offshore only. In fact, it is heavily skewed toward onshore, with only 12.3% of its European portfolio offshore. It had a positive month in July for its combined portfolio, 4.8%, but its year-to-date deviation in July was still negative, at 4.8% below the norm.

In August, the combined portfolios of Iberdrola, Vattenfall and SSE PLC all had positive monthly deviations, which improved their year-to-date metrics and flipped the latter two into positive territory in the year to date.

The varied performance of assets in location, relating to both offshore versus onshore and global location, points toward the need for diversification.

Windmills of the mind

Given that July was a poor month for wind speeds in European offshore, additional EBITDA adjustments across the offshore wind sector could be forthcoming. That said, wind speed is just one of many factors that go into EBITDA — it is being used as a lens here. Other factors include an individual company's business lines, its split between wind and solar (and other generation methods), the type of wind at a given site, operational issues such as turbine maintenance, and the efficiency of the technology at a given site. But Ørsted's downgrade does highlight the difficulty of predicting earnings.

According to Ioannis Papadopoulos, Market Area Manager, Offshore Wind, UK and Ireland, Energy Systems at DNV AS — a technical consultancy company that advises on wind power installation and operation — there are several issues at play. There are the long-term average wind speed and direction, air density and temperature, as well as seasonal and yearly variability, which are used to decide whether to build or extend a project. Additionally, there is short-term weather forecasting, which is used more for forecasting operations. It is hard to reconcile the two. "The long-term average distribution [created in preconstruction energy assessments] will give you some idea of what the distribution should look like over an average year. What it can’t give you is a prediction for every month of every year for the next e.g. 20 years." Siting analysis usually uses 20-year forecasts, as that is the average life of a turbine.

Another major factor that affects wind speeds at a given location is the so-called wake effect. This is the impact one turbine has on the wind reaching another turbine in the same farm or at another farm. A paper entitled "Stilling skies" — recently produced by the utilities equity research team at Citigroup Inc. subsidiary Citi Research — discusses the wake effect as emergent and being potentially more problematic. Citi Research declined to comment, but Adam Forsyth, Head of Research at Longspur Capital Ltd., a clean energy specialist who had not seen the paper, said that wake effects were relatively localized. "It tends to be quite a near impact. So if you've got a project that's maybe 10 miles away — from what I've seen — the impact is much less … You would factor it in when you're doing your financing, but it's not going to stop you doing a project."

Both Papadopoulos and Forsyth view the consideration of wake effects in offshore wind as a natural development of the industry. Micrositing analysis was always required in onshore wind, but with buildable space for offshore becoming tighter, it will start to feature more heavily in the offshore industry.

Forsyth sees the higher interest-rate environment as having a bigger impact on future development. The boom in offshore wind was driven by low interest rates. "This is a highly capital-intensive industry where, so a lot of spend upfront for income which is some way in the future."

Another risk to earnings forecasting is political risk. In the US, House Reconciliation Bill 1 has rolled back many of the renewable incentives included in the Biden administration's Inflation Reduction Act of 2022. Although the UK, the global leader for offshore wind capacity, has the system of contracts for difference (CFDs) in place, which aim to reduce political risk by guaranteeing a set price, Forsyth said that a recent development is that clients are now asking what would happen to renewables development if the Reform party gains power in the UK. The party has stated that it would eliminate renewable energy subsidies.

Winds of change

The Citi Research paper also discusses climate change as a factor influencing changes in wind capacity factors. Both Papadopoulos and Forsyth see climate change as having very localized effects, as well as general ones. Papadopoulos said, "You can't easily make sweeping generalizations about this part of the world is going to do this and that part of the world is going to do something else. It is very much more of a topical sort of interpretation that's required."

The increased volatility of wind performance that is expected due to climate change is going to require more sophisticated modelling at the project finance stage and also make earnings performance harder to predict. But Forsyth sees it as a case of the inputs to the model changing rather than the model itself.

The offshore wind industry is at a turning point, where the only certainty is that predicting earnings will become harder, and the chances of EBITDA adjustments will increase.

Wind speed is the value 100 meters above the ground from fifth-generation European Centre for Medium-Range Weather Forecasts reanalysis. The data is available at quarter-degree latitudes and longitudes, with a spacing of slightly over 27.5 km. This analysis compares the July and August 2025 values with the 20-year average (2004–2023) for those months.

Data visualization by Cat VanVliet and Oscar Solano.
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Kristin Larson contributed to this article.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.