Europe’s Offshore Wind Industry Faces Financial Turbulence

‘It is all a massive case of buyer’s remorse because [of] excessive optimism about future costs five years ago,’ an expert says.

Kayakers paddle on the Mersey Estuary near the Burbo Bank Offshore Wind Farm in Liverpool, United Kingdom, on Aug. 4, 2021. Christopher Furlong/Getty Images

Funding challenges and rising costs are slowing down Europe’s offshore wind industry, with major players scaling back investments amid financial strain.

Despite record public and private investment, strong government support, and locked-in climate laws, analysts say the sector is struggling with supply chain pressures and rising interest rates, which are undermined by underpriced contracts from previous years.

Gordon Hughes, former Professor of Economics at the University of Edinburgh and former senior adviser on energy and environmental policy at the World Bank, told The Epoch Times via email that “it is all a massive case of buyer’s remorse because [of] excessive optimism about future costs five years ago.”

In the past two years, industry giants like Orsted, Siemens Energy, and Vestas have been forced to reassess their investment strategies as financial setbacks pile up.

Shifting investor sentiment and U.S. President Donald Trump’s renewed push for oil and gas have added to the turbulence.

Industry Giants Hit 

Last month, Denmark’s Orsted, the world’s largest offshore wind developer, announced it was cutting planned investments for 2030 by 25 percent in an effort to shore up its finances in a challenging market.

Orsted, which operates 12 offshore wind farms in the UK—including Hornsea 1 and Hornsea 2, the world’s largest wind farm as of August 2022.

In February, Siemens Energy’s wind subsidiary, Siemens Gamesa, said it anticipated a loss of €1.3 billion ($1.4 billion).

Vestas, the world’s top wind turbine manufacturer, said in February that despite a record-high order backlog, “ongoing geopolitical and trade volatility is expected to cause uncertainty.”

Sweden’s Markbygden Ett, Europe’s largest wind-power plant—owned by China General Nuclear Power Group Europe Energy (CGNEE) and BNR Infrastructure—ran into financial trouble last year when it failed to generate enough electricity to fulfill its agreement with Norway’s Hydro and had to pay €248 million ($271 million).

Waves break out at sea in front of Burbo Bank Offshore Wind Farm near New Brighton, at the mouth of the river Mersey in northwest England on March 13, 2019. Paul Ellis/AFP via Getty Images

Government Support  

The UK and EU’s net zero laws have created favourable conditions for the wind industry.

According to international law firm Two Birds, Europe is expected to add 260 gigawatts (GW) of new wind power capacity from 2024 to 2030.

The UK’s Labour government has lifted a de facto ban on new onshore wind projects, in place since 2015, and pledged to double and quadruple onshore and offshore wind generation, respectively, ahead of 2030.

However, Hughes said that collectively, all of the large offshore operators and equipment suppliers “under-priced contracts which they bid for and obtained in the late 2010s and early 2020s.”

Hughes has authored reports for the London-based Global Warming Policy Foundation, a think tank founded in 2009 by former UK Conservative Chancellor Nigel Lawson. The foundation is critical of net zero policies.

Hughes said that operators have tried to pass their losses onto suppliers, but the overall effect has been large write-downs on expected profits from new wind farms across Europe.

“Suppliers like Vestas and Siemens have to push up their prices to stabilise their balance sheets, but that undermines the expected returns on projects under construction or being proposed. As a consequence, most of the operators are reducing their budgets for investing in new projects,” he said.

Hughes said that offshore projects in the U.S. Atlantic region had been a “bright spot” due to “high offtake prices,” agreed-upon rates at which electricity generated from these projects would be sold.

But he said that the Trump administration is “extremely hostile to expensive offshore wind and is threatening to cancel or refuse the necessary offshore leases and permits.”

“Operators and suppliers had relied on cash flow from these projects to offset the squeeze in Europe. That won’t happen—at least for a few years—which reinforces the reduction in investment budgets.”

Financing

Hughes also highlighted a shift in financing, saying that the “market had switched towards reliance on oil companies financing new offshore wind farms.”

“Shareholders have objected vehemently to the (probably) low return on such projects and so company managements have been forced to shift back to oil & gas investments—or return money to shareholders—rather than pursuing diversification into wind and solar projects,” he said.

Three major European international oil companies—Shell, BP, and Equinor—have faced pressure to increase profits and shareholder payouts, leading them to scale back renewable investments.

On Feb. 26, BP in a major strategy shift slashed planned investment in renewable energy and said it would increase annual oil and gas spending to $10 billion, in a major strategy shift.

French oil giant TotalEnergies is taking a different approach by investing significantly in renewables. It has an offshore wind power portfolio with a total capacity of over 16GW. The company is planning to sell up to 50 percent of its fully owned renewable assets.

A gendarmerie maritime sails by a wind farm, off Fecamp, France, on Oct. 18, 2024. Lou Benoist/AFP via Getty Images

But investor appetite for wind still remains strong.

A report from global auditing firm KPMG found that 72 percent of investors say investment in energy transition assets is “accelerating, even amid geopolitical volatility and fluctuating interest rates.”

In the report, Grant Hill, KPMG Managing Director, M&A, Climate & Decarbonization, said the wind and solar supply chain has “historically been very fragmented, often consisting of small, country-specific businesses.”

“We’re now seeing investors interested in consolidating and growing these businesses to create more efficient, international supply chains,” he added.

Energy analyst David Turver, author of the Eigan Values Substack, told The Epoch Times in an email that he thinks increased turbine prices have affected developers.

But he also said he thinks “the bigger impact has been increased interest rates.”

“This has a big impact on their financing costs and means they need higher electricity prices to make money,” he said.

Oil and Gas

Steve Brown, Chief Executive Officer at Orcadian Energy, is leading work to secure an 80-million-barrel project, one of the largest undeveloped discoveries in the North Sea, backed by private investments.

Brown told The Epoch Times that over the last 20 years, oil and gas exploration and production companies typically raised about a billion pounds a year on the London Stock Exchange.

But that amount has dropped significantly, 92 percent, amid the UK’s net-zero goals.

“It was actually us that raised half a million quid in January of ‘24, and that was the only money raised last year for the oil and gas sector in the UK,” he said.

Brown pointed to rising interest rates as a key factor impacting the wind industry.

“Previously, a lot of these projects were financed at very low interest rates because first rates were low, half a percent for the base rate, and the premium for investing in an ESG [Environmental, Social, and Governance] compliant wind power project wasn’t very big at all.”

“If we go out to borrow money, typically it’ll be 12 or 15 percent interest rate because we are non-ESG compliant,” he said.

Many banks restrict access to finance for oil and gas companies under ESG rules.

“A lot of banks won’t open accounts for us. Virtually every single one of the challenger banks in the UK has refused to open an account for us because we’re an oil and gas business,” Brown said.

The Epoch Times contacted Orsted, Siemens Energy, and Vestas for comment, but did not receive a response by publication time.

Reuters contributed to this report.