JP Morgan and Vestas tie-up for onshore finance


May 19, 2017

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It has been a long time since wind turbine makers simply made turbines. It is common to see the largest manufacturers offering long-term service deals to the developers that use their turbines.

These deals make a lot of sense. They give the turbine buyers more confidence that there will be support when they need it when they buy their machines; and they give the manufacturers a long-term income stream, as typical O&M deals can last up to 20 years.

It is common for these turbine makers to offer developers extra services after the turbines are up and running.

And last week we saw the start of what may be the start of a new trend among turbine manufacturers. Vestas and JP Morgan Asset Management have set up Vision Renewables, which is set to provide construction finance for wind developers.

For Vestas, this means it can get involved at an early stage in the development process, and create more of a market for its machines by providing financial support for developers that want to build schemes. This can also support growth in its service arm, which reported sales of €1.3bn in 2016 and represented around 13% of the company’s €10.2bn annual turnover.

Vestas has focused on growing this arm over the last five years, and has succeeded in doing so. In early 2016 it bought O&M specialist Availon for €88m, which followed its acquisition of UpWind Solutions for €55m in late 2015. The service arm’s €1.3bn sales in 2016 are up from €1.1bn in 2015 and €940m in 2014, and Vestas is looking to reach €2bn within the next three years.

Vestas will hope that its involvement with Vision will support further growth in its services. So, what is the vision for Vision?

In short, Vision Renewables is a joint venture that is set to provide construction finance for onshore wind developers in established markets including Australia, Belgium, Canada, Finland, France, Germany, the Netherlands, Norway, the Republic of Ireland, Sweden and the UK. The idea is that Vestas brings the technical expertise while JP Morgan brings the financial experience. Vision has been set up with an initial €333m, but this could grow.

The new firm will provide construction finance for projects and support them through development before exiting the investment when the projects completes. This will let Vision recycle its capital so it can invest in new schemes. This is a well-established model, but it is interesting to see it attached to a high-profile turbine maker. We know that others in the market will keep a close eye on it, if you’ll pardon the pun.

So developers could have their projects financed, supplied and managed by two companies that are very closely linked – and the involvement of JP Morgan gives them a potential exit strategy too. It is easy to focus on the benefits of the Vision structure for Vestas, but it also opens up relationships with developers that could mean commercial deals for JP Morgan.

At present, JP Morgan Asset Management owns over 3.2GW of renewables projects. It grew this in February by buying a 409MW portfolio of now-operational onshore wind farms from private equity firm Terra Firma’s subsidiary Infinis.

At that time, JPMAM’s chief investment officer said that it was seeking to be a leading “pan-European renewables independent power producer”, and we can see how Vision would play an important role in this plan. It should put JP Morgan at the front of the queue when those developers look to sell their projects.

We can see why Vision makes sense for Vestas and JP Morgan. Our only question is whether developers will want to be tied to those three businesses for throughout their development ‘journey’, and to what extent customers will be able to get pursue commercial deals with other players. For some, a ‘one stop shop’ is convenient. Others will find it suffocating.

The presence of two well-known wind players should be enough to attract a healthy order book – and we expect more turbine makers to jump on the construction finance bandwagon over the next 12 months. It seems a logical step in a crowded market.

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