Empire Wind timeline remains on track
- New York PSC rejected RE developers’ petitions for power sale contract price increases to incorporate inflation and supply chain impact.
- STM does not see an impact on timeline for EPC contract work on Equinor and BP’s Empire Wind farms. Other offshore projects are progressing well.
- We reiterate our Add call with a TP of S$0.19, based on 1.5x CY24F P/BV.
New York utilities body denies financial relief to RE developers
? Orsted (ORSTED, NR, CP: DKK359), Equinor (EQNR, NR, CP: NOK368.65), BP (BP, NR, CP: 536.10 £p) and other renewable energy developers requested the New York Public Service Commission (PSC) to adjust prices in its power purchase agreements to incorporate inflation and other supply chain impact to 4 proposed offshore wind projects, including Empire Wind 1 and 2 that STM has EPC contracts for, and 86 landbased renewable projects.
? On 12 Oct 2023, the PSC denied these requests to maintain a competitive bidding process and protect ratepayers as the adjustments would have led to 6.7-10.5% higher monthly electricity bills for residential and commercial/industrial customers (totalling ~US$12bn in additional costs). According to the US Energy Information Administration, the average price of electricity across all end-customers in New York
was 19.44 UScts/kWh, c.47% higher than the national average of 13.19 UScts/kWh, as of Jul 2023.
No impact on STM contract timeline
? Empire Offshore Wind, a JV between Equinor and BP, awarded STM ~S$500mn worth of contracts for 2 offshore wind farm substations in May 2023. The EPC, offshore hook-up and commission work on Empire Wind 1 and 2 are scheduled to commence in 4Q23 and 2H24, respectively. With a total installed capacity of ~2.1GW, the Empire Offshore Wind projects will power more than 1m New York homes.
? Equinor and BP have yet to assess the impact of not receiving their desired 54% price increases for the Empire and Beacon wind projects to recoup costs as the PPAs were secured in 2019 (EW1) and 2021 (EW2, Beacon) before supply chain disruptions caused by Covid-19 and the Russia-Ukraine war.
? We understand from STM that there has been no change in the timelines for EW 1 and 2, and the scheduled starting date for EW 1 is on track. Our ground checks on other ongoing offshore substations include Orsted’s Greater Changhua 2b and 4 offshore wind farm in Taiwan (clinched by Keppel Offshore and Marine in Jan 2023), which struck steel in Aug 2023. The project is due for delivery in 2025.
Reiterate Add with a TP of S$0.19
? We keep our Add call as STM is the largest listed yard in ASEAN with capabilities in offshore and marine, energy transition and offshore structures engineering and construction capability. Our TP is based on 1.5x CY24F P/BV (average trading range from Jan 15 to May 23). Downside risks: cost overruns in projects delaying turnaround in profits. Re-rating catalysts: stronger-than-expected margins and a faster-thanexpected turnaround from net loss to net profit.
