Eversource stock is sunk in wake of company’s deep dive into offshore wind

Amid a troubled time for the offshore wind industry in general, the sale has dragged on for much longer than anyone anticipated. Yes, the Biden administration helped the sector by setting an aggressive offshore development target, aimed at getting more green energy into the nation’s electric grids. But supply chain snarls and a rapid rise in interest rates in 2022 upended the contracts necessary to finance many of these multibillion-dollar projects, rendering them financially infeasible.

Eversource’s offshore wind saga underscores the challenges inherent in this clean-energy transition, in which the noble goals to wean everyone off fossil fuels crash against the reality of market forces.

So how bad has it been for Eversource? The utility’s stock shed more than 26 percent of its value in 2023 — one of the worst performances of any New England public company — while the Standard & Poor’s 500 index rose 24 percent. More than seven billion dollars in market value, gone in one year. And that was before last week’s tumble.

Yes, Eversource suffered from factors that weighed down other utility stocks. The sector’s modest-but-consistent returns can be attractive to some investors during a time of low interest rates. But after rates rise quickly, those investors can find better options; at the same time, utilities themselves need to pay more to finance big infrastructure work.

An index of 30 utilities in the S&P 500 fell 10 percent last year; Eversource’s decline was two-and-a-half times that size. What went wrong? Analysts point to two reasons: an unfriendly regulatory environment in Connecticut, and offshore wind travails. Does misery love company? Avangrid faced the same issues last year — and endured a similar decline.

Eversource now apparently has an archnemesis in Connecticut’s top utility regulator, Public Utilities Regulatory Authority chair Marissa Gillett. Eversource water subsidiary Aquarion asked Gillette’s agency for a rate hike in Connecticut, and was ordered in March to cut rates instead. Eversource is challenging this ruling in court, but Wall Street has already noticed.

“She’s got a public disdain toward this company,” said Shar Pourreza, a stock analyst at Guggenheim Partners.

And the challenges facing offshore wind may be even harder to deal with than a hostile regulator.

This should be a time of celebration for offshore wind, with the country’s first two large-scale projects, South Fork and Vineyard Wind, under construction in waters south of New England and generating electricity. But nearly everything else is stalled right now — including a wind farm called Sunrise Wind that Eversource planned with Ørsted to serve New York.

It wasn’t supposed to be like this. Back in 2016 when Eversource first teamed up with Ørsted (then DONG Energy), the Massachusetts Legislature had just passed a law requiring the state’s main electric utilities — Eversource as well as National Grid and Unitil — to buy offshore wind power. Other states would soon follow, with their own procurements.

“We thought it was an industry that had big support in the US, from the federal government, and from our states,” Eversource executive vice president Jim Hunt recalled, “[and] that there would be high demand for offshore wind, particularly in our region where we have the best wind conditions in the world.”

The wave crested two years ago with a blockbuster federal auction of leases for areas off New York and New Jersey. But even then, Hunt said, Eversource could see the supply chain issues on the horizon. Nolan, then a new CEO, wanted out, preferring to invest precious capital in less-risky endeavors.

But it might have been just a little too late to head for the exit. Buyers suddenly became scarce as the costs soared for lining up components and borrowing money for these massively expensive projects.

“There aren’t a lot of investors who are willing to take on US offshore wind projects given the economics,” said Travis Miller, a utilities strategist with Morningstar. “As the company went through the valuation process, I think the market started to realize that offshore wind was not going to be the growth opportunity that many investors had thought.”

In August, Nolan promised a deal was at the “one yard line” and joked about making his CFO skip summer vacation to get the job done.

Not that skipping the beach would have made much of a difference. As of last week, Eversource still had no deal to announce, prompting one Scotiabank analyst to issue a research note headlined “A New Year, but the Same Old Song.”

Instead, the news was bad: that $1.6 billion markdown. One chunk, up to $700 million, can be attributed to Sunrise Wind, whose fate is uncertain now that New York is putting its contract back out to bid after regulators denied a request for more money under the original contract to cover the increased costs. And rising construction expenses, particularly for installation vessels and turbine foundations, prompted Eversource to write down the value of all three of its projects with Ørsted — Sunrise Wind, South Fork, and Revolution Wind (another project planned for waters south of Rhode Island) — by up to another $900 million.

As for shedding these projects entirely: Hunt said it’s taking so long in part because it’s such a complicated transaction, involving a joint venture partner as well as three different projects in varying stages of development.

But Eversource continues to say a deal is close. Nolan said last week that a “leading global private infrastructure investor” is lined up to take over all three projects.

But until a deal closes, Nolan noted, Eversource will have to keep pouring money into its Ørsted joint ventures. That’s probably not what investors want to hear, especially after already paying a big price for this deep dive into offshore wind.

Jon Chesto can be reached at jon.chesto@globe.com. Follow him @jonchesto.