Hosking Partners is a London boutique founded in 2013 by Jeremy Hosking, a portfolio manager at Marathon Asset Management for over 25 years. It runs a single global equity strategy built on the capital-cycle, supply-side approach — contrarian, long-term, and unusually diversified (350+ holdings) under a multi-counsellor model, managing around $5.5bn.
This piece explains how offshore wind became a bubble driven by hype and cheap money, then crashed. The author argues that markets wrongly assumed wind costs would fall like solar's, but physics limits efficiency gains, and rising interest rates destroyed project economics. They like Altius Renewables Royalties (ARR), which collects royalties from wind projects without bearing construction costs, reducing risk. Ørsted and Siemens Energy are down 75% but no buy signal given.
One-sentence summary: The offshore wind industry has undergone a value destruction driven by political narratives and cheap capital, but opportunities may emerge from the rubble. Hosking Partners is engaging this theme through Altius Renewables Royalties, a low-risk royalty model. 【Cautious】
Shares of Ørsted and Siemens Energy have fallen 75% from their 2021 highs, a classic lesson in how markets can be distorted by political narratives and cheap capital. The author opens with a quote from Hamlet — “let the engineer be blown up by his own petard” — hinting at the industry’s self-destruction. The article argues that the impulse to back “the next big thing,” when amplified by political momentum and financial speculation, must be weighed against fundamental economic principles. Its core approach is to focus on supply rather than demand, reducing the distorting effect of powerful narratives on valuations.
A typical offshore wind project has an IRR of only 6–8%, far below the 15–20% seen in oil and gas projects, yet the market used near-zero discount rates to inflate long-dated cash flows to absurd levels. The author’s original phrase — “future cashflows were mis-valued” — captures this precisely. The key evidence chain is as follows:
| Metric | Offshore Wind | Oil & Gas Projects |
|---|---|---|
| Typical IRR | 6–8% | 15–20% |
| Perceived Risk | Low operational/financing risk | High volatility |
| Policy Environment | Regulatory tailwinds + tax incentives | Neutral / headwinds |
Ørsted claimed that its 150–300 bps WACC advantage, supported by inflation-linked power purchase agreements, could insulate it from rising interest rates. The author, however, argues this underestimates interest rate risk. When analysts discount these low-risk, long-duration cash flows at near-zero rates, the present value is artificially inflated. The result: Ørsted’s P/E approached 100x in early 2021, with EV/Sales exceeding 12x, triggering a flood of capital and a surge in industry debt.
The author hints that opportunities may emerge from the wreckage but stops short of issuing a clear buy signal. The article uses the capital cycle approach to identify the bubble early (by focusing on supply oversupply rather than demand narratives) and suggests that once valuations collapse, survivors may offer value. However, readers should note this is a holder’s perspective — Hosking Partners may already hold or be evaluating related positions, and its judgment naturally carries a bias.
The article points out that the market has mistakenly applied the logic of solar technology advancements to offshore wind, leading to overly optimistic expectations for cost declines. The author argues that while historically more efficient energy forms have replaced older technologies, wind power’s energy return on investment (EROEI) is approximately 20 times, which, though higher than most oil products (about 4 times), is lower than natural gas, coal, hydropower, nuclear power, and the global energy system average of 30 times. More critically, wind power has a long payback period—capital, materials, and energy inputs take years to recover, and a 30-year lifespan is required to achieve a 20-fold return, whereas energy returns from fuels like coal can be realized within months.
The author states: “The lofty valuations achieved by many wind companies assumed cost deflation was being driven by technological innovations that drove up efficiency.” This means: “The high valuations of many wind companies were built on the assumption that technological innovation drives efficiency gains, which in turn leads to cost declines.” The author believes this assumption mistakenly applies the path of solar energy (a semiconductor technology following Moore’s Law) to wind power. Photovoltaic cells can continuously improve efficiency through semiconductor miniaturization, but the fundamental physics of wind power has remained unchanged for 700 years. Efficiency gains primarily rely on increasing blade and turbine size, but “this is a double-edged sword”—power generation grows linearly with swept area, while the force required to overcome air resistance increases cubically with speed, so the marginal benefits of size expansion eventually decay exponentially.
The article argues that the costs of wind projects are systematically underestimated, manifesting in three interrelated dimensions: technology cost inflation, rising operating costs, and surging capital costs. First, since 2000, the unit cost (USD/watt) of UK wind projects has risen at a compound annual growth rate of 2.5%. Second, model assumptions project extremely low degradation rates and operating costs that do not rise, but actual data show that large turbines increase mechanical stress, and harsh sea conditions lead to unexpectedly severe weathering, with annual degradation rates of 2-4%, far exceeding the model assumption of 0-1%. This not only drives up maintenance expenses but also feeds back into capital expenditures due to shortened asset lifespans.
The most severe issue is the third: the impact of rising interest rates on capital costs has been overlooked. Offshore wind is highly capital-intensive (approximately $4,000/kWh), and for every 1% increase in long-term capital costs, the levelized cost of energy (LCOE) rises by about 1.3 cents/kWh. When interest rates surge from 0% to 5%, the base cost of wind power increases significantly by about 30%. The author states: “Small changes in discount rates can dramatically affect the present value of their cashflows.” This means: “Minor changes in discount rates can dramatically impact the present value of these cash flows.”
The combination of these three factors has led to a collapse in the economics of global wind projects, with internal rates of return (IRR) completely destroyed by relatively minor changes in model assumptions. Although some power purchase agreements (PPAs) between utility companies and wind producers are linked to inflation, nominal revenue growth is far from sufficient to offset the surge in costs. Many PPAs have been directly canceled because producers cannot renegotiate at purchase prices 50-60% higher than initial quotes. In the UK, a major offshore wind auction received no bids at all. Future cash flows have turned negative, high leverage has accelerated value destruction, and this has transmitted to equity valuations.
| Key Data | Original Value |
|---|---|
| Annual unit cost growth rate for UK wind projects (since 2000) | 2.5% |
| Actual annual degradation rate vs. model assumption | 2-4% vs. 0-1% |
| Impact of a 1% rise in capital costs on LCOE | +1.3c/kWh |
| Impact of interest rates rising from 0% to 5% on wind costs | Approximately +30% |
| PPA renegotiation price increase | 50-60% |
The article uses a capital cycle framework (focusing on supply rather than demand) to identify the offshore wind bubble early and systematically deconstructs the three main causes of valuation collapse. Readers should note that this is from a position-holder’s perspective. While the author reveals the wreckage of the industry, it hints at potential future opportunities (e.g., companies like Ørsted and Siemens Energy), but this article does not provide specific buy signals.
The article argues that after the offshore wind bubble burst, some companies may be leveraging lower risk premia to position themselves for market opportunities, but the supply side remains far from tight. The author believes that valuation collapses will slow the pace of new capacity and capital investment while catalyzing industry consolidation. The key judgment is: "The supply picture is still far from tight, but certain companies may now be positioning to capitalise on the overall market opportunity at lower risk premia than the pure-plays." In other words: "The supply situation is still far from tight, but certain companies may now be positioning to capture the overall market opportunity at a risk premium lower than that of pure-play theme investors."
Hosking Partners recently added Altius Renewables Royalties (ARR) to its portfolio, arguing that it offers thematic exposure through a renewable energy royalty model while avoiding cost volatility risks. ARR was founded by Frank Getman, a former bankruptcy lawyer turned renewable energy expert, and co-owns Great Bay Renewables (GBR) with private equity firm Apollo. GBR provides project financing for renewable energy projects in exchange for a novel type of renewable energy royalty. The article emphasizes that this model "offers exposure to the theme, but without the sorts of risk which have decimated the returns of offshore wind investors over the past twelve months." In other words: "It provides exposure to the theme, but without the types of risk that have destroyed the returns of offshore wind investors over the past twelve months."
ARR's revenue comes from a "royalty" on the revenue of the most promising renewable energy projects, thus avoiding exposure to cost fluctuations. Its royalty structure features two key innovations:
Additionally, grid connection for projects creates a free option for future projects for the royalty holder. GBR also retains an option to acquire royalties on the developer's remaining projects at a predetermined 10.5% IRR, which is essentially a valuable option on interest rates. The author concludes that the ARR model offers exposure to the renewable energy theme while shielding against short-term unpredictable volatility driven by the macro environment.
Through a capital cycle approach, Hosking Partners has chosen to engage with the renewable energy theme via the unconventional structure of Altius Renewables Royalties after the offshore wind bubble burst, rather than directly holding pure-play companies such as Ørsted or Siemens Energy. Investors should note that this is a position-holder's perspective—the author uses ARR's "low-risk royalty" model to justify the holding, but the model relies on legal innovation and project development success, meaning actual returns remain uncertain.
| Ticker | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| Altius Renewables Royalties (ARR) | New Position | Provides renewable energy exposure through a royalty model, avoiding cost volatility risks, and is a unique way to enter the theme at current levels | Target pre-tax unlevered IRR of 8-12% on royalties; GBR retains an option to acquire royalties on remaining projects at a predetermined 10.5% IRR |
| Ørsted | Hold & Observe | Stock has plunged 75%; opportunities may emerge after the valuation collapse, but the report does not give a clear buy signal | P/E near 100x in early 2021, EV/Sales above 12x |
| Siemens Energy | Hold & Observe | Stock has plunged 75%; like Ørsted, it is a potential survivor after the bubble burst, but supply side is still far from tightening | Stock down 75% from its 2021 peak |