Orsted - a lot of wind and storm.

In the course of yesterday morning, the Danish energy supplier had a very $ORSTED (+0,03 %) had a very special surprise in store for its investors.

It was announced that parts of the U.S. portfolio would have to be written down generously.

What does that mean now?

1. what is depreciation anyway?

There is scheduled and unscheduled depreciation in business administration. The names are self-explanatory. A write-down is usually a reduction in the value of business assets.

So much for that: Let's reflect on this now with an example with a little

back story:

Orsted has ambitious growth targets in new markets, including the US and Eastern Europe. So they need a lot of capital for this and take out loans. There, the respective tangible assets, in this case the wind turbines, are deposited as collateral. On the basis of this and, of course, other business factors, the lender calculates the interest rate for the loan.

Fortunately, since the "inflation reduction act" last year, renewable energies enjoy a tax reduction of about 30%. However, if this legal provision had not been agreed, the US market would probably have been abandoned yesterday.

And what next?

I hope I can keep it as comprehensible as possible: Specifically, we are talking about 3 wind projects that cannot be completed on time due to supplier problems. These projects account for about 50% of the assets in the USA. Total assets in the USA amount to just under €4 billion. The assets here comprise around €2.5 billion, or 62.5%. Depreciation comprises just under €730 million of this, i.e. just under 30%.

So you take more than half of your property that you financed with credit and realize, "Oh crap, I just lost 30% value."

What does the bank say about that?

"Since the terms were contracted on different terms, we need to revise them and submit new terms at higher interest rates."

Congratulations, so you are now getting even higher interest rates on top of your loan amount, which will massively reduce your profit and the longer the delay in realizing the projects lasts, the more money you will lose as a company.

But it gets worse:

Although you affirm that you can maintain the EBITDA margin, but honestly: How are they going to do that?

The margin will shrink and liabilities will continue to rise, free cash will shrink. On the stock market, this means that not only the growth fantasy is off the table, but also the serious danger of becoming unprofitable on a net basis.

It is alarming for the industry that Orsted is setting a negative example and demonstrating how unattractive wind power actually is, especially in the utility sector in the USA. In this role, one bears the producer risk and the operator risk at the same time.

And once again, there are calls for the state ... 😉