Ørsted, Deepwater Wind: Are Offshore Wind Mergers Good for Us?

November 13, 2018 | 3:11 pm
Photo: Kim Hansen/Wikimedia Commons
John Rogers
Energy Campaign Analytic Lead

Last week saw offshore wind giant Ørsted complete its acquisition of local star Deepwater Wind. Is that a good thing?

The players and the scorecard

The $510-million deal brings together two important players in the offshore wind space. Rhode Island-based Deepwater holds the distinction of being the developer of the first offshore wind project in the Americas, the Block Island Wind Farm in Rhode Island waters. Since no successor projects have gotten that far, it also holds the distinction of being the owner of the only offshore wind project in the Americas.

Ørsted, formerly the Danish Oil and Natural Gas company, developed the very first offshore wind farm, in Denmark in 1991, and is the largest developer of offshore wind in the world, including the new world recordholder for largest offshore wind farm. In this country, it holds an offshore wind lease in federal waters off the Jersey coast, and a half share of another off Massachusetts. It’s also involved in a pilot project under development off Virginia.

For Deepwater’s investors, the acquisition by Ørsted, originally announced last month, likely represents a successful exit on the bet they took with the company, established in 2007.

For Ørsted, acquiring Deepwater gives it an even more solid footing in the US market. Along with the Block Island project, Deepwater holds two of the four federal offshore wind leases off Rhode Island and Massachusetts, and half of another off Maryland. It won bids early this year to supply Rhode Island with 400 MW of offshore wind and Connecticut with 200 MW. And its proposed 90 MW wind farm east of Long Island looks like a good bet to be one of the next places for steel in the water.

Credit: Derrick Z. Jackson

What about us?

The Ørsted press release announcing the Deepwater acquisition said that they expected it “to deliver a healthy value creation spread on top of our cost of capital, with additional significant strategic upside.” It’s not entirely obvious what that business-speak means, but it’s clear they think it’s a good idea for them.

But what does this merger mean for us—consumers, policy makers, or just interested observers?

On the one hand, competition is good, and a merger like this arguably reduces competition—in the case of bid opportunities like the ones from Rhode Island and Connecticut (and Massachusetts), for example. Some might also feel some regret having an American company get acquired from abroad.

On the other hand, it’s easy to view this as a strong vote of confidence by a company that knows more than a thing or two about the offshore wind space. If Ørsted is willing to put a half a billion dollars into increasing its presence in these parts—not to mention the investment that its new portfolio of projects will require—that’s a pretty strong sign that we (the public, the states, the federal government) must be doing something right in working to create an attractive climate for investment in offshore wind.

There’s also clearly a lot of value in achieving economies of scale in this industry. European offshore wind project keep getting larger and cheaper, and now we’ve seen dramatic drops in the price of power from offshore wind on this side of the Atlantic, in Massachusetts’s recent long-term contracting.

And, while Deepwater was no shrinking violet, financially (its owner was a hedge fund with tens of billions of dollars under management), Ørsted brings plenty of capital to bear plus its 27-year experience in the offshore wind space.

Given the incredible challenge of climate change, our need to do offshore wind power not just quickly but correctly, and the tremendous potential off our shores/near our cities, most anything that accelerates the ramp-up of offshore wind in this country is probably a good thing for us as consumers, and for us as citizens of a world in need of decarbonization.

Because ultimately, that’s where our focus needs to be: faster, cheaper, right-er. We’ll be watching the industry to make sure that’s where their focus stays too.

About the author

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John Rogers is energy campaign analytic lead at the Union of Concerned Scientists with expertise in clean energy technologies and policies and a focus on solar, wind, and natural gas. He co-managed the UCS-led Energy and Water in a Warming World Initiative, a multi-year program aimed at raising awareness of the energy-water connection, particularly in the context of climate change, and motivating and informing effective low-carbon and low-water energy solutions.