Ørsted Revises Offshore Production Forecasts Downward

Ørsted has revised its offshore wind production forecasts after concluding that the company’s current production forecasts underestimate the negative impact of the blockage effect and the wake effect.

The blockage effect arises from the wind slowing down as it approaches the wind turbines. There is an individual blockage effect for every turbine position and a global effect for the whole wind farm, which is larger than the sum of the individual effects.

”Our new wind simulation models show that we have historically underestimated these blockage effects,” Ørsted said. ”This finding is also supported by industry consultant DNV GL’s recent report on blockage, which indicates that this effect is more broadly underestimated.”

The wake effect is the aggregated influence on the energy production of the wind farm, which results from the changes in wind speed caused by the impact of the turbines on each other. The wake effects can also occur between neighbouring wind farms. Ørsted predicts that as the global offshore wind build-out accelerates, the whole industry will see higher wake effects from neighbouring wind farms.

”Over the years, we have benchmarked our internal production estimates against third-party views from industry experts,” Ørsted said.

”In comparison, most third-party production estimates have been trending towards a more positive view than ours. Therefore, we believe that underestimation of blockage and wake effects is likely to be an industry-wide issue. While there is still uncertainty involved, it is clear that the production forecast adjustment arising out of our analysis has a negative effect on our financial estimates.”

The lifetime load factor of 48-50% for a defined European offshore wind portfolio and construction and development projects is reduced to around 48% due to the adjustment of production forecasts, the company said.

Ørsted has also reduced the unlevered lifecycle Internal Rate of Return (IRR) for seven named offshore wind projects won in competitive tenders, Borssele 1 & 2, Hornsea 2, German Cluster 1, Gode Wind 3 & 4, Greater Changhua 1 & 2a, Greater Changhua 2b & 4, and Revolution Wind, from 7.5-8.5% to 7.0-8.0%.

The company has identified two more negative factors impacting its long-term financial targets, the lower feed-in tariff  for the Changhua 1 &2a projects in Taiwan, where the company had to accept a 6% reduction and a cap on full-load hours, and an increase in the CAPEX estimate for the Deepwater development portfolio in the US, mostly related to the transmission assets.

Ørsted said that it is taking measures to reduce its annual overhead cost base by DKK 500-600 million between 2020 and 2022.

”Roughly half of the cost reductions will be fall-away costs relating to the simplification of our structure following the divestment of our Danish downstream assets, and half will come from reductions across our staff functions, both internal and external spend,’‘ Ørsted said.

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