EDP and Engie’s offshore project in the US risks “significant” delays and higher costs

Last Tuesday, Reuters reported that the US Administration, led by Donald Trump, will reconsider the licences granted to Ocean Winds (OW) — a joint venture between EDP Renováveis and Engie — for the SouthCoast Wind offshore wind energy project.

The news agency cited a document from a case filed in federal court in the United States. Contacted by ECO/Capital Verde, Ocean Winds confirmed that it is “aware” of a motion filed by the Department of Justice in a lawsuit brought by the city of Nantucket, state of Massachusetts.

“The current legal proceedings are being handled through the appropriate legal channels and may take several weeks”, OW added. It stressed that “the SouthCoast Wind project does not yet have a final investment decision”.

The company indicates that Southcoast Wind’s construction and operations plan was approved on 17 January by the Bureau of Ocean Energy Management, following a “rigorous” four-year review that included input from state and federal agencies, as well as ocean-related commercial entities and other stakeholders.

Regardless of this, “the US Department of the Interior’s decision to reassess the approval of SouthCoast Wind creates significant uncertainty for Ocean Winds”, says João Queiroz, Head of Trading at Banco Carregosa. In his view, the project faces a “political and regulatory risk that could profoundly alter its timetable and economic viability”.

According to the head of Banco Carregosa, “SouthCoast Wind remains viable, but faces a political and legal stress test”. “The most likely outcome is that it will survive with delays and increased costs”, that is, without formal cancellation of the construction and operation plan. For Henrique Tomé, an analyst at XTB, the delays in execution could be “significant”. This “would compromise the start of operations on the scheduled date, with direct repercussions on revenue generation”, as well as on credibility with regulatory bodies, institutional partners, and investors.

Queiroz believes that “the worst-case scenario is a cancellation that would force a restart of the process [with new studies and environmental conditions], with increasing losses”. The economic losses, according to analyst Henrique Tomé of XTB, could include both costs already incurred in studies, licensing and contracts, which are “difficult to recover”, as well as contractual penalties and deteriorating financing conditions, with higher capital costs.

At the same time, for EDP Renováveis, as a listed company, “there is the added risk of negative perception in the markets, with an impact on share prices and the ability to attract new investors”, adds Henrique Tomé, who also mentions the possibility that expected returns may fall short of forecasts, reducing value creation for shareholders.

When questioned about the investment made in the project to date, as well as possible economic losses resulting from the court action, EDP Renováveis referred to OW, which, in turn, chose not to disclose any figures.

Queiroz estimates that the exposure of EDP Renováveis and Ocean Winds in the United States and in the offshore wind energy segment “is significant, but, so far, controlled”. As SouthCoast Wind has not yet reached a final investment decision (FID), direct losses are mainly concentrated in capitalised development costs, lease payments and initial commitments to the supply chain, he lists.

The head of Trading at Banco Carregosa also warns that it is “plausible” that impairments on intangibles or development rights will arise, “but they are unlikely to approach the extreme cases already seen”, such as those of Ørsted, which recognised impairments of several billion dollars when it cancelled Ocean Wind 1 and 2. He expects that, in the case of EDP, the impairments will be in the “tens to a few hundred million, if a scenario of prolonged delay or cancellation is confirmed”.

The company anticipated a 13% increase in recurring profit in 2025, which took this new investment into account. “The possibility of the investment being cancelled could be particularly negative for the company’s accounts, considering that in 2024 EDP Renováveis closed the year with a loss of more than €500 million”, Henrique Tomé recalls.

The project, with a potential of up to 2.4 gigawatts and located 20 nautical miles from Nantucket, was already facing challenges after Shell’s exit from the capital (the British oil company owned 50% of the project, which it sold to OW) and a cancellation of power purchase agreements in 2023, recalls Banco Carregosa.

Now, reconsideration and institutional “charm”

From Banco Carregosa’s perspective, OW has two “fronts of attack” in relation to the process. On the one hand, legally speaking, EDP Renováveis and Ocean Winds should seek to have the court allow reconsideration without annulling the plan. On the other hand, commercially, it will be essential to “re-anchor” the project to the market through new contracts and conditions that offer greater predictability to financiers, including greater contractual flexibility with suppliers and potential capital partners.

In institutional terms, a united front with local stakeholders — from regional authorities to fishing communities — may be important to counteract possible alliances between the administration and federal states, argues Queiroz. The idea is to increase transparency and demonstrate clear, transparent and direct economic benefits. “It is essential to strengthen dialogue with regulatory and government entities, ensuring transparency and collaboration in the licensing and approval process”, emphasises Henrique Tomé.

Looking at strategy, Queiroz states that “it is also time to reassess the allocation of resources within the asset portfolio, favouring more stable geographies or regulated assets”. Henrique Tomé points out that the solution to similar situations has been for companies to increase their investment in the US economy, so that the Trump Administration can remove the obstacles presented.