Investors upbeat about future of Europe's offshore wind projects

by Search Gate staff. Published Thu 04 Dec 2014 20:37
Investors are positive about investing in offshore wind projects
Investors are positive about investing in offshore wind projects

Financing for European offshore wind projects is surging forward with a wave of confident investors, according to a new analysis report published today.

The report European offshore wind 2014 – funding the opportunities published today by leading international law firm Freshfields Bruckhaus Deringer reveals a positive attitude to financing of new and projected European offshore wind projects.

But the report warns that new and innovative funding structures are needed.

Underlying survey data shows that the sector is beginning to benefit from a healthy appetite in the lending market, competitive capital costs and, in consequence, strong funding opportunities for projects with sound commercial or financial structures.

Utilities, however, are in need of additional financing; 61% of the respondents believe utilities are insufficiently capitalised to fund construction-stage equity investment themselves. Survey data shows a trend towards partnering with institutional investors such as pension funds or insurance companies to finance future offshore wind projects.

In addition, utilities increasingly consider project finance funding with debt finance becoming a viable option. Over two thirds of survey participants see enough capacity in the debt market to meet demand for the next five years.

Furthermore, more than three quarters of respondents also see more innovative project structures as key for utilities to attract financial partners as investors.

Paul Bowden, Freshfields partner and Co-Head of Low Carbon commented: “The top line here is that investors are broadly positive about investing in offshore wind projects. We have already seen investment in the sector exceeding €1bn in the first half of 2014 – with €4.1bn of debt invested in 3 offshore wind farms so far this year, 2.5 times more than in the whole of 2013.

“Nonetheless, utilities need to adjust to the new market environment and explore more innovative ways of financing.”

Marcus Mackenzie, Freshfields partner, added: “Offshore wind projects with sound commercial and financial structures continue to be attractive investments and secure strong funding for construction and refinancing. We expect installation volumes to remain robust during the next three years despite grid connectivity issues, unstable trading conditions and small subsidies, particularly in the UK.”

Country highlights include:

* In Germany there are encouraging finance and investment trends alongside a new regulatory regime that has bolstered confidence in investing in offshore. 20% of respondents believe Germany will be the most active market for investment in the coming 18 months with 50% believing Germany’s EEG reforms are positive for the offshore wind industry. Grid connections remain an issue however, with fewer than one in three (27%) believing previous connection problems have been resolved

* The UK is poised to dominate European off shore wind activity - 64% of survey respondents expect the majority of investment in operating assets to be concentrated in the UK, but UK Contracts for Difference (CfD) changes have proved controversial and leave the long term subsidy regime still unsettled

* 98% of respondents believe that the Netherlands needs clear rules for grid connection in place before major investment can take place. However, this hurdle won’t stop the country hitting its target to install 4.5GWof offshore wind capacity by 2023, say 58% of those surveyed

* France has invested in vast onshore programmes and is now tendering for offshore. As the country moves away from its reliance on nuclear power 74% of respondents see the growing offshore market to open up to utilities and foreign investors.

Wolf Spieth, partner and Co-Head of Low Carbon at Freshfields concluded; “Third party finance remains key to Europe’s offshore wind projects, especially for new build. Investors’ interest and the level of funding we’ve seen already this year are encouraging.

“With 1,200MW of installed turbines awaiting grid connection and 4,900MW due to come on-board across Europe we should be broadly positive about the immediate to mid-term future for European offshore wind.”

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