European offshore wind receives 40% debt finance boost

EUROPE: Despite the global economic squeeze, last year saw a 40% increase compared with 2010 in non-recourse debt finance for offshore wind power in Europe, as nine new offshore wind farms moved closer to financial completion

EUROPE:Despite the global economic squeeze, last year saw a 40% increase compared with 2010 in non-recourse debt finance for offshore wind power in Europe, as nine new offshore wind farms moved closer to financial completion

With 2,375MW of new generation capacity under construction during 2011, installed offshore wind power within the European Union is set to increase by 62%, according to the European Wind Energy Association's (EWEA) 2011 review of the offshore sector.

In 2011, 235 new offshore wind turbines were connected to the grid, representing a combined value of approximately €2.4 billion. The majority of last year's newly installed and grid-connected offshore wind power in Europe — 87% — is located in British waters. This is set to change in the next five years as the report suggests Germany is way out in front in terms of consented capacity (see chart below).

Siemens supplied 80% of the megawatts installed offshore last year, while SSE (formerly Scottish & Southern Energy) and RWE Innogy were the most active developers. Dong Energy continued to be the most active equity player in the European offshore wind-power sector.

By the end of 2011, there were 1,371 offshore turbines installed and grid connected in European waters at 53 wind farms in ten European countries with a total capacity of 3,813MW. Offshore wind across the continent is now meeting 0.4% of the EU's total electricity consumption.

Perhaps last year's most encouraging trend was increased availability of finance for the sector. In 2011, non-recourse debt financing for offshore wind farms in the North Sea and Baltic Sea increased by 40%, from €1.46 billion in 2010 to €2.05 billion. Three transactions — Meerwind, Globaltech and Baltic 1 — achieved financial close last year.

Looking at equity finance, more than 3GW in net planned capacity changed hands last year, in addition to investment commitments announced by a number of utilities and developers on projects they already own. Dong Energy was the most active equity player on both the acquisition and sale side.

Lending to the offshore wind sector is now increasingly viewed as a core activity for project finance banks, as evidenced by a number of banks confirming they will continue to support the sector this year.

EWEA notes that while no two projects are alike, the requirements of the banks are increasingly consistent across the market. However, EWEA's report warns that "general uncertainties as to the ability of the banks to continue to provide long-term financing to the economy may also touch the sector".

New programme

Notably, the 288MW Meerwind project in German waters, which closed in August, was the first to take advantage of a new €5 billion investment programme set up by KfW, Germany's development bank, and the first to be backed solely by a purely financial investor with no involvement from a utility.

Following on was the 400MW Globaltech1 project, developed by Windreich and owned by a group of German and Swiss utilities. It is supported by both KfW and the European Investment Bank (EIB).

Last November, German power company EnBW announced successful post-completion refinancing of Germany's first commercial wind farm, the 48MW Baltic 1. Once again, this deal involved support from the EIB.

Last year also saw several transactions involving non-recourse refinancing of offshore cables. UK deals involving offshore transmission owners at Robin Rigg, Gunfleet Sands, Barrow and Walney 1 had an aggregate value of more than €300 million.

EWEA emphasises that the Danish export credit agency EKF and the EIB continued to support non-recourse lending to the offshore sector in 2011, joined by KfW. The EIB maintained its policy of supporting offshore wind farms through corporate financing backed by utilities, providing a €180 million loan to Vattenfall to refinance the 300MW UK Thanet project. It also joined in the financing of the Walney 1 cable.

Highlighting difficulties facing the offshore sector, EWEA focused on connectivity challenges. "Stricken with regulatory uncertainties and constant delays, the investment decisions for two previously planned interconnection projects between Norway and continental Europe seem to have been delayed to the latter half of the decade," warns EWEA. If and when these are built they are likely to play an important role in integrating European offshore wind assets.

The report also warns of the risk of a shortage of cables and large voltage transformers: "Without increased capacity in manufacturing a shortage of high-voltage subsea cables is likely to become a critical bottleneck for the offshore industry".

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