Stormy Seas Ahead: Orsted's Cancellation of Hornsea 4 Highlights Offshore Wind's Cost Crisis

The abrupt cancellation of Ørsted’s UK Hornsea 4 offshore wind project in 2024 marks a turning point in the renewable energy sector’s trajectory. While the project’s abandonment underscores the formidable challenges facing large-scale renewable infrastructure, it also raises critical questions about the financial sustainability of ambitious green energy targets. Let’s dive into the numbers behind this decision and its implications for investors.

The Financial Tsunami: Breakaway Costs and EBITDA Hits

Ørsted’s decision to cancel Hornsea 4—despite having secured a 15-year Contract for Difference (CfD) in 2024—will exact a hefty toll on its financials. The company projects breakaway costs of $533 million to $685 million USD in 2025, primarily covering contractual cancellation fees and terminated supply chain agreements. These costs are set to reduce EBITDA by $457 million to $533 million, a significant blow given Ørsted’s 2025 EBITDA guidance of $3.8–4.2 billion USD (excluding new partnerships and cancellation fees).

The write-down of $76–152 million USD in capitalized construction costs further complicates the picture. These expenses, though excluded from EBITDA, will directly impact net income. Meanwhile, the company’s Q1 2025 operational EBITDA surged 18% to $1.3 billion USD, driven by completed projects like Germany’s Gode Wind 3. This juxtaposition highlights the fine line between near-term profitability and long-term risk in Ørsted’s portfolio.

The Perfect Storm: Supply Chains, Inflation, and Interest Rates

The cancellation was not a single failure but a symptom of systemic pressures:
1. Supply Chain Chaos: Soaring costs for steel, copper, and labor—amplified by global inflation—have made projects like Hornsea 4 economically unviable. The project’s 180 turbines, planned for a busy shipping lane, added logistical complexity.
2. Interest Rate Surge: Higher financing costs have raised the hurdle rate for capital-intensive projects. Ørsted’s $7.6–8.2 billion USD gross investment guidance for 2025 now faces tighter scrutiny.
3. Regulatory Lag: Delays in grid connections and permits have compounded execution risks, pushing timelines—and costs—beyond original projections.

These factors are industry-wide. Competitors like BP and Vattenfall have also reported write-downs, signaling a sector-wide reckoning.

Strategic Resilience or Retreat?

While Ørsted retains seabed rights, grid agreements, and a Development Consent Order, the pause on Hornsea 4 reflects a shift toward value-focused capital allocation. The company’s insistence on maintaining its EBITDA and investment guidance despite the write-offs suggests confidence in its operational efficiency. However, the $600 million USD+ total financial impact underscores the risks of overcommitment in an inflationary environment.

Conclusion: Navigating the Rocky Seas of Renewable Energy

Ørsted’s cancellation of Hornsea 4 is a wake-up call for investors. While the company’s Q1 2025 performance and $25–28 billion USD EBITDA guidance indicate resilience, the project’s fate reveals vulnerabilities:
- Cost Inflation: Offshore wind project costs have risen by ~30% since 2020, outpacing government CfD price guarantees.
- Supply Chain Risks: Global shortages of critical materials threaten timelines and budgets.
- Industry-Wide Fragility: Competitors’ write-downs suggest Ørsted isn’t alone in facing these headwinds.

For investors, the takeaway is clear: while renewable energy remains a long-term growth story, the path to profitability is littered with financial potholes. Ørsted’s ability to navigate this by prioritizing projects with clear cost-control mechanisms and diversifying its geographic portfolio (e.g., US Gulf of Mexico projects) will be key.

The cancellation of Hornsea 4 is not an end but a recalibration—a reminder that even industry leaders must adapt to survive in turbulent waters. For now, the storm clouds loom, but the wind still blows toward a greener future—if carefully managed.

Data as of Q1 2025. Past performance is not indicative of future results.