Ørsted forges on with second US acquisition in two months

Danish giant Ørsted has bought leading US offshore wind developer Deepwater Wind from hedge fund D.E. Shaw for $510m. You saw that one, right?

In its announcement – which went out in time for our Monday edition – it said it wanted to create the“US offshore wind platform with the most comprehensive geographic coverage and the largest pipeline of development capacity”.

And this comes hot on the heels of its acquisition of US onshore wind developer Lincoln Clean Energy for $580m in August. That deal showed that Ørsted aims to make inroads onshore again, and this one shows it isn’t neglecting offshore wind.

With Ørsted’s double defeat in offshore tenders in Massachusetts and Connecticut earlier this year still fresh in our minds, the acquisition of Deepwater sends a clear message: Ørsted is more determined than ever to conquer the US. Will it do so?

As far as strategic moves go, buying Deepwater is a bold way to succeed in this market that has, thus far, proven challenging. But simply, it makes a lot of sense.

The value of this deal to Ørsted is reflected in the cost: $510m for a small developer with only one project online could be a major risk, but Deepwater looks worth it.

Deepwater has a strong track record in the sector in the US and has shown that it can succeed against the big boys. We shouldn’t forget how Deepwater outbid Bay State Wind, the 50:50 joint venture between Ørsted and Eversource, for the right to develop Connecticut’s first offshore wind farm in June. With this acquisition, Ørsted is not only expanding its own reach in the US – adding 3.3GW to take its US offshore portfolio to more than 8.8GW – but is also quite literally buying out the competition.

Known for developing the first offshore wind farm in the US, the famed 30MW Block Island, Deepwater also has a development-stage portfolio of 810MW, with 2.5GW of potential capacity in the pipeline. It therefore possesses location-specific experience, and an understanding of how to deliver projects within the US regulatory framework.

In addition, by buying Deepwater’s extended pipeline of projects, Ørsted has been able to get something out of auction processes in which its bids fell short.

And both companies have helped to build the positive momentum in the US offshore sector in the last three-and-a-half years. Ørsted electrified the market in early 2015 by entering as the US’s then-flagship offshore wind project, the 468MW Cape Wind, fell apart. And Deepwater Wind helped to show it was possible to build in US waters despite deep uncertainty provoked by Cape Wind.

From Deepwater’s perspective, Ørsted also possesses the financial and operational capacity needed to develop its pipeline. After the deal completes, which is due by the end of 2018, the combined company will be known as Ørsted US Offshore Wind, and led by Ørsted’s Thomas Brostrøm and Deepwater’s Jeff Grybowski as co-CEOs.

Finally, the acquisition reflects the potential for investment firms such as D.E. Shaw to get involved in ventures early on, build them up, and then sell them on to a utility.

These deals have become a feature of the US market in the last few years, and we wrote about thisin our free report, America’s Wind Buyout Boom, in September. The pressure on utilities to expand makes this a good time for investors looking to sell.

In this way, Ørsted is simply one more example of a European utility demonstrating a popular principle to achieve growth in the US: if you can’t beat them, buy them.