Conference comment: Funding offshore in 2020


October 3, 2014

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“I do worry about this sector sometimes. We’re very good at setting targets for 2025 or 2030, but let’s talk about this decade.”

So said Nick Gardiner, the recently-appointed managing director of offshore wind at the UK Green Investment Bank and former head of renewables at BNP Paribas, during his keynote speech at our ‘Financing Wind’ conference on Wednesday. And he did just that.

Gardiner talked about the major challenges that offshore wind in Europe has to address before 2020 before looking further ahead.

These include how to cope with 10MW turbines; subsidy regimes; emerging transmission infrastructure; improving reliability; and the changing minds of politicians. These all need answers before we fixate on notional figures for GW by the end of next decade.

But he focused most on the question of how best to fund schemes.

Offshore wind farms are getting bigger, further out to sea, and using larger turbines. All of this means they require more money than ever before — but are also subject to more development risks.

Gardiner said by 2020 he expects significant changes in the way schemes are funded.

The appetite from commercial banks is changing as they do not want significant amounts of debt tied up in offshore wind farms. They will provide funding in the development phase but then sell their interests to institutions that want to own long-term assets.

This is where equity investors come in. Gardiner said there is interest from equity investors such as utilities, manufacturers and other institutions to provide backing to schemes, but he added that a talked-about ‘tidal wave’ of equity investment is yet to emerge.

So how will things look different in 2020?

“Owners will be very different. The tidal wave will have arrived. You will see financials and a number of other companies that want to invest in green,” he said. “By 2020 you will see institutional investors in construction projects but also, given the numbers involved, you are also looking at sovereign wealth funds. The funding market will look very different.”

This sounds very positive. But the challenge for European offshore wind will be how to bring in a wide range of these investors, such as sovereign wealth funds. Abu Dhabi’s Masdar recently invested £525m in the UK’s Dudgeon scheme, but such deals are rare.

One potential solution is focusing on a wider ‘northwest European’ market, not focusing too much on the individual UK, German, French, Dutch and Scandinavian markets.

That, according to Gardiner could be something that would attract new entrants from Asia and the Americas. In turn, that too would help better market and sell the sector’s true potential.

It’s a compelling idea. And crucially, it’s another reminder that as an industry we aren’t just selling offshore wind to a domestic general public – but rather to major global investors. In that respect, showing off a bigger market is better.

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