Orsted (XE:D2G), the Danish renewable energy company, experienced a 25% decline in its market value on Wednesday due to cautionary remarks about substantial impairments linked to three wind projects off the U.S. east coast. This situation adds further strain to an industry grappling with escalating costs and delays in supply.

Amidst robust demand for renewable energy, offshore wind developers are encountering significant challenges. Governments are striving to meet climate targets and augment electricity generation, evidenced by the Biden administration’s goal of installing 30 gigawatts of offshore wind power by 2030. This push has led to the opening of areas along the U.S. east coast for development, accompanied by tax incentives to foster cost-effective progress.

Nonetheless, the industry has been hit by inflation-driven material and service cost spikes, coupled with heightened interest rates that have inflated financing expenses. These factors have led to uncontrollable project costs and necessitated developers to renegotiate or abandon contracts due to project unprofitability.

Equinor from Norway and BP from Britain are encountering financial hurdles with wind farm projects off New York’s coast. They indicated the need to renegotiate power prices for financing viability. Similarly, an Iberdrola subsidiary backed out of an offshore wind-power agreement in Massachusetts, opting to pay $48 million in withdrawal costs due to unfavorable project economics compared to 2021.

In the Gulf of Mexico, a groundbreaking auction for offshore wind development rights resulted in a lone winning bid of $5.6 million, while two offshore areas in Texas received no bids.

Orsted’s challenges are centered on three U.S. offshore projects. The company revealed a potential impairment of up to DKK 16 billion ($2.34 billion) in its third-quarter earnings due to project review. While these projects have not yet reached the final investment decision stage, the company is exploring alternative options.

Chief Executive Mads Nipper mentioned that if the economical rationale leans towards walking away from these projects, that remains a real possibility.

Orsted has eight U.S. offshore projects in various states. Challenges from suppliers and specialized installation vessels have caused delays, potentially affecting revenue and increasing costs. Assuming no further supply chain issues, the company expects impairments of up to DKK 5 billion.

In the U.S., tax incentives support offshore development, encompassing credits for using domestically produced materials and meeting specific job and location criteria. Orsted is in discussions to qualify for additional tax credits, aiming for at least 40% on all projects, but the current lack of U.S. industry capacity hampers this effort.

Potential impairments could reach DKK 6 billion if these endeavors fail. If U.S. long-dated interest rates persist, impairments of about DKK 5 billion could ensue.

While Orsted remains committed to the long-term potential of the U.S. market, Nipper emphasized the need for swift action from the federal government to make scalable offshore wind a reality.

Although Orsted regularly evaluates its projects, its ventures elsewhere are not facing impairment concerns. However, similar issues are being faced by companies like Vattenfall in Europe, where higher inflation and interest rates have impacted profitability assurances.

This scenario is affecting suppliers as well. Vestas Wind Systems, a turbine maker, has seen a 20% drop in shares due to slowed orders attributed to increased project costs and European permitting challenges. Despite hopes for a second-half boost in orders from the U.S. offshore wind drive, Vestas’ shares fell 5.2% following Orsted’s setbacks.

At 1258 GMT, Orsted’s shares were trading 25% lower at DKK 422.