Giant wind turbines start to pay off and investors want more

Published April 15, 2018
The GE-Alstom Block Island Wind Farm stands in this aerial photograph taken above the water off Block Island, Rhode Island.—Bloomberg
The GE-Alstom Block Island Wind Farm stands in this aerial photograph taken above the water off Block Island, Rhode Island.—Bloomberg

The expanding network of giant windmills in the North Sea — the largest such collection in the world — is turning into a windfall for some bankers helping institutional investors acquire a piece of Europe’s renewable-energy market.

A record $9.36 billion of stakes in offshore wind farms were sold last year, up 77 per cent from 2016, and refinancing of project debt doubled to $6.27bn, data compiled by Bloomberg New Energy Finance show.

The 23 acquisition deals, almost all in Europe, were the most ever for the industry, and the average transaction price rose 69pc to $407 million, an all-time high.

Investors are stepping up investment in offshore wind farms that are producing eight times more power than in 2008.

After years of public subsidies, turbines as tall as the Eiffel Tower with blades longer than soccer fields are grabbing a bigger share of Europe’s electricity supply, replacing some coal-fired plants on land.

With demand rising for renewable energy, developers are selling stakes in older projects to raise cash for new ones.

“Offshore wind makes up a significant and growing percent of the work we’re doing in infrastructure,” said Lisa McDermott, an executive director of project finance at ABN AMRO Bank in Amsterdam. “It’s getting very competitive for banks to get involved.”

Among the financial institutions active in offshore wind deals are Green Giraffe, KPMG, Societe Generale, Mitsubishi UFJ Financial Group and Natixis.

“There’s lots of people announcing sales,” said Carol Gould, head of power and renewables on the structured finance desk for MUFG in London. “It’s very hectic,” Gould said, adding that there are “quite a few” deals slated for the first half of this year.

Governments in Europe have been investing in clean energy to make good on commitments made in the 2015 Paris climate accord to reduce carbon emissions. BNEF estimates countries in the EU provided 61bn euros ($75bn) of subsidies in 2016 for renewable energy, mostly for solar and wind farms.

The startup costs for renewables used to be higher than conventional fuels, but improvements in technology make some new wind and solar developments cheaper than building a coal plant.

The UK and Germany are by far the biggest investors in projects that try to harness the ocean breezes in the North Sea, accounting for more than three quarters of the region’s offshore generating capacity.

While offshore wind farms account for just 2pc of Europe’s electricity, more are being built. According to BNEF estimates, each new project announced last year in Europe will cost more than $500m. One will top $4.8bn.

Many of the investors buying into offshore wind are attracted to stable cash flows from long-term contracts to sell power at above-market rates, a legacy of early government aid for the industry.

The UK paid out almost 138m pounds last year to projects with contracts for difference, just one of several subsidy programmes.

“You can see the enthusiasm worldwide and the imperative for decarbonisation and renewables,” said Richard Crawford, a director at Renewable Energy Investment Group, which acquired a 15pc stake in the Sheringham Shoal offshore wind farm for $91m (80m pounds) in December.

“There is the opportunity, of course, for more significant amounts of money to be invested in offshore, and that’s exciting some investors.”

In January, Partners Group agreed to buy 45 percent of the Borssele III and IV projects in the Netherlands from Royal Dutch Shell, Eneco and a unit of Mitsubishi Corp. The deal may have been valued at about $2bn.

Orsted recently sold 50pc of its Walney Extension wind farm in the UK to two Danish pension funds for 2bn pounds.

Sumitomo Corp is said to be close to buying a stake in wind projects under development in waters off western France from a consortium led by Engie.

A few miles down the coast, Renewable Energy Systems is looking for a buyer for its piece of a wind farm the company is working on with Spain’s Iberdrola in the Saint Brieuc Bay.

In the UK, the biggest source in Europe for offshore wind power, Germany’s Innogy SE is planning to sell a minority stake in its Triton Knoll project, which is under development. Enbridge Inc is selling half of its interest in the Hohe See wind farm off the coast of northern Germany, with Canadian funds and Macquarie Group said to be preparing bids.

“We still have interest in adding more offshore investments to our portfolio,” said Henrik Nohr Poulsen, executive director at Copenhagen-based PFA Pension A/S, one of the Orsted buyers.

Last month, Japanese trading house Marubeni Corp sold its share of the Westernmost Rough project in the UK to Macquarie’s Green Investment Group.

Marubeni also is said to be in the early stages of divesting its interest in the Gunfleet Sands wind farm.

Bloomberg/Washington Post Service

Published in Dawn, April 15th, 2018


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