Energy Musings - August 12, 2025
Danish wind developer Orsted shocked the stock market with a huge capital raising plan. The need for more capital reflects market changes that force management to adjust its strategy.
Ørsted Offering Reflects New Business Model Needed
On Monday, Danish offshore wind developer Ørsted shocked the investment world with its announcement of a huge capital raise. The company is issuing new shares through a rights offering to raise 60 billion Danish Kroner (DKK), or $9.4 billion of new capital, to fund the construction of Sunrise Wind and to strengthen its balance sheet. The offering format allows all shareholders to exercise their rights to purchase new shares and retain their relative ownership share of the company. The reality is that the capital raise was driven by the need for Ørsted to change its business model.
The announcement noted that the Danish government, Ørsted’s majority shareholder (50.1%), has agreed to support the offering. It plans to purchase its pro-rata share of the offering. Denmark’s Ministry of Finance said its roughly 30.1 billion DKK ($4.7 billion) purchase would be “classified as a financial transaction in the national accounts, and therefore will not be seen to affect public expenditure and budget balance.” This investment assures that the government will retain its majority ownership position after the additional shares are issued.
Right-wing Danish opposition lawmakers criticized the government’s decision, questioning why Danish taxpayers should be funding the construction of a U.S. offshore wind farm. Sydbank analyst Jakob Pedersen said, “The U.S. offshore wind market was crippled after Trump took office. But things started going badly for Ørsted before Trump.”
Pedersen crystallized Ørsted’s problem. “The company is in really bad shape. A capital increase was the last resort. It was not just the right decision, it was the only option they had left in their toolbox,” Pedersen told Reuters. Pedersen may be playing the role of the little boy in Danish writer Hans Christian Andersen’s “The Emperor’s New Clothes,” when he said, “the emperor has no clothes.”
Ørsted noted that investment bank Morgan Stanley & Co., International plc would underwrite the share offering, ensuring that all the new shares would be sold. The deal’s schedule calls for convening an Extraordinary General Meeting of shareholders on September 5 to authorize the share sale. The prospectus would be issued during the first half of September, with the transaction closing in the first half of October.
Equinor’s Problem With The Ørsted Offering
The Ørsted rights offering presents a serious issue for another major European energy company and a player in the offshore wind business. Last October, Norway’s energy company Equinor became Ørsted’s second largest shareholder after it acquired 41.2 million shares, or 9.8% of the company. An RBC Capital Markets report noted that Equinor had invested roughly $2.3 billion of shareholder capital that was worth only $1.5 billion on Monday afternoon, further adding to its offshore wind investment woes.
The Ørsted rights offering highlights the dilemma Equinor’s management faces. Given the poor performance of the Ørsted investment, what does Equinor management do? Doing nothing is an option. However, it would confirm that management made a strategic error when it bought the Ørsted shares shortly before the U.S. election and the potential return to office of an anti-renewable energy president. Accepting a nearly 50% dilution in its current shareholdings would be a further statement of the initial mistake. Managements seldom are willing to admit mistakes because it could become the “former” management.
Purchasing shares but not up to their pro-rata share would have management doubling down on its investment, but not fully. It would, however, see its investment diluted by the additional shares not purchased. Going all in on share purchases would reinforce the view that management believes in offshore wind, but this would come just after it has cut back wind investments and has re-energized its oil and gas operations. How would that decision be messaged to the investment community? Is Equinor the latest Hamlet on the management stage?
The rationale for going all in is that it preserves the possibility of an Ørsted share price recovery, but at the cost of an additional $900 million investment. Could that money be better spent within Equinor? Management will have a lot of explaining to do.
A $900 million capital commitment would increase the company’s balance sheet leverage at a time when investors have become more concerned about Equinor’s current debt level. RBC analysts estimate the going all-in investment would increase Equinor’s debt leverage by two percentage points, reflecting an investment that management has little control over.
Are There More Shoes To Drop?
Before the share sale announcement, Ørsted’s market capitalization was roughly $129 billion. The surprising move was not well-received by the financial markets, as predicted by several investment analysts. Ørsted’s share price fell by 30%, shrinking the market cap to just over $90 billion. The significant decline in share price cuts the expected capital raise. Such an ill-timed announcement does much to damage a management’s credibility with investors, which is critical if Ørsted is to regain its lofty stock market valuation. Yes, Ørsted delivered better financial results than analysts were projecting for its second quarter. Still, the headline story was the highly dilutive share offering and its justification.
The next 30 days will be a trying time for Ørsted’s management and board of directors. The share price last Friday closed at 308.60 DKK. It opened Monday at 260.00 DKK, fell to an intraday low price of 210.20 DKK, before closing at 217.10 DKK. That was below the company’s initial public offering in 2016. Based on last week’s price, the rights offering required the sale of roughly 195 million shares. At Monday’s closing price, it will take an additional 35 million shares. That is not a huge increase, but Ørsted could be facing a lower price as hedge funds and other traders work to drive the share price down further with an expectation they will be able to buy replacement shares at much lower prices via the offering. Will Ørsted need to increase the offering’s size to raise the capital it needs, even though it would create even greater dilution for current shareholders? Such a scenario presents additional reputational risk for Ørsted’s management, which is new after replacing the failed performance of the prior management earlier this year. Reputational risk can become an anchor holding back any rise in share price, even with solid financial results.
What drove such a disastrous move? Management attributed the need for additional capital to a problem with the U.S. offshore wind market that forced the company to change its business model. With the arrival of Donald Trump in the White House, he has taken on the renewable energy industry, especially wind. Recently, he lectured European Union President Ursula von der Leyen about wind energy, calling it a “con job,” as she sat beside him at his family’s new Turnberry golf course in Scotland. Her facial expressions were priceless as she was lectured about the failings of a fundamental energy policy in Europe.
Ørsted’s press release set forth the rationale for the rights offering.
“Following the recent material adverse development in the US offshore wind market, it is not possible for Ørsted to complete the planned partial divestment and associated non-recourse project financing of its Sunrise Wind offshore wind project on terms which would prove the required strengthening of Ørsted’s capital structure in order to support the company’s investment program and business plan. Based on this development, Ørsted’s Board of Directors has today decided to discontinue the process for the partial divestment of Sunrise Wind and plans a rights issue with pre-emptive rights for existing shareholders (the ‘Rights Issue’).”
The Ørsted business model is based on the strategy of acquiring an offshore lease either alone or with a partner, developing a project, securing the regulatory approvals, agreeing to the sale of the electricity generated by the wind turbines, and then building the project. At some point during this process, Ørsted will seek a partner (or its original partner) to enable it to sell down a portion of the project at a higher asset value because of the value created by the project. The partnership arrangement allows the project’s new owner to borrow the development funds on the strength of the project’s economics and not Ørsted’s balance sheet.
Ørsted says that its process for selling down its interest in the Sunrise Wind project was moving along “well” until April, when the Trump administration’s efforts to throttle the offshore wind industry began to be enacted. The inability to attract outside investor capital to fund the development of Sunrise Wind forced Ørsted to consider completing the project alone. This meant paying the full remaining development costs and having to fund the development from its financial resources (balance sheet).
In the investor presentation accompanying the rights offering announcement, we learned that Sunrise Wind is about 35% complete. Still, it will require an additional 40 billion DKK ($6.2 billion). Two-thirds of the funds raised from the rights offering will fund the completion of Sunrise Wind. With Ørsted having to finance the capital expenditures from its financial resources, it needs additional equity to support the higher debt load. That is the role of the additional 20 billion DKK (3.2 billion) of capital raised.
The adversarial attitude of the Trump administration to renewable energy and offshore wind in particular has scared off institutional investors from investing in these projects. However, Sunrise Wind has been a troubled project since the lease was acquired in 2013. The project successfully negotiated the regulatory process and secured a power purchase agreement with the New York State Energy Research and Development Authority (NYSERDA) at $110.37 per megawatt-hour (MWh) in 2018. In little over two years, COVID struck, disrupting the global economy and sparking a wave of inflation driven by government support for their economies. Coupled with supply chain issues, the U.S. offshore wind industry was slammed with sharply rising costs and higher interest rates than anticipated. The economics and financial viability of offshore wind projects were destroyed.
Ørsted requested an adjustment to its previously negotiated power purchase price. Using various inflation metrics and the additional cost of connecting to the grid, the company proposed an increase in the price from $110.37 to $139.99/MWh, a 27% increase. The company was allowed to rebid the Sunrise Wind project in the following offshore solicitation conducted by New York State. It was successful, and signed a contract at the higher electricity price, which includes a 2% annual inflation adjustment. Given its history and the dynamics of the offshore wind market, Sunrise Wind is marginally profitable, if at all.
We would have liked to have been a fly on the wall in the Ørsted boardroom when Morgan Stanley bankers opined on the expected market reaction to the announcement of the rights offering. We doubt anyone expected quite as negative a market reaction. Ørsted’s share price on the second day of trading has reached a new low of 2o0 DKK, and is at 211.30 as we write this article on Tuesday morning. The Ørsted saga continues, but its journey ripples throughout the offshore wind and global energy markets.