Ørsted transformed itself from a Danish oil and gas utility into the world's largest offshore wind developer between 2012 and 2022 — a corporate transformation celebrated globally as a model for the energy transition. Then interest rates rose, and the stock fell 75% peak-to-trough between 2021 and 2023. Understanding why requires understanding offshore wind economics.
Ørsted develops, builds, and operates offshore wind farms — primarily in Europe and the United States. Revenue comes from long-term contracts (power purchase agreements, or PPAs) and government support mechanisms (contracts for difference, or CfDs) that provide stable, predictable cash flows over 15–25 year periods. The business looks more like an infrastructure company than a traditional energy company — high upfront capex, long asset lives, stable but inflation-linked revenues.
This infrastructure-like profile makes Ørsted extremely sensitive to the discount rate used to value its long-duration cash flows. When interest rates rise, the present value of those 20-year cash flows falls significantly — even if the underlying wind farms continue operating perfectly.
In 2023, Ørsted wrote down approximately DKK 28 billion in US offshore wind projects — primarily due to rising interest rates, supply chain cost inflation, and the inability to renegotiate PPAs to reflect higher costs. The writedowns triggered a major share price decline and raised questions about the entire US offshore wind industry's economics. This episode illustrates the key risk: long-term fixed-price contracts signed when rates were low become loss-making when rates rise and costs increase.
The bear case for Ørsted peaked in late 2023. New PPAs are being signed at higher prices that reflect current cost structures. The European offshore pipeline — where Ørsted has stronger regulatory frameworks — continued to perform well throughout the period. As interest rates decline from their 2023 peak, the discount rate headwind reverses. Investors who bought Ørsted at P/Book of 1.0–1.2x in late 2023 were buying the world's leading offshore wind developer at asset value — with no premium for its development expertise, brand, and pipeline.
| Ørsted | Vestas | |
|---|---|---|
| Business model | Developer + operator | Turbine manufacturer |
| Revenue type | Long-term PPA/CfD | Equipment sales + service |
| Rate sensitivity | Very high (asset valuation) | High (customer economics) |
| Primary risk | Development writedowns | Order intake collapse |
| Cycle signal | 10-year rates + P/Book | Order intake + rates |
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