Looking offshore rather than onshore


July 3, 2013

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Nobody dare doubt him – the plan remains fixed and the company stays resolutely on track. In other words – deviation is for another day.

That’s the clear signal that was shared with the market late last week, following Dong Energy’s commitment to offload its entire onshore wind business in Denmark, to the Danish Energy company SE and PFA pension fund.

The sale, for around €102m, includes 272 turbines, with a total installed capacity of 196MW. It also involves the transition of the eighteen staff currently committed to overseeing operations at the 80 different sites, where the turbines have an average operational track record of approximately 16 years.

Perhaps more importantly however, the sale – that’s still subject to regulatory approval – forms a key part of Dong’s strategic plan to divest DKK10bn in non-core assets, as it switches its attention to the offshore wind energy market.

And this of course is where it gets really interesting – not least because of the sheer size of the bet.

For, as Dong has become increasingly embedded in the European offshore sector, the challenge of maintaining a sufficiently buoyant balance sheet has become paramount. Developing on balance sheet is still achievable for the likes of Dong of course but it means that the company has to become increasingly selective about where it chooses to invest future capital.

And as a result, it is onshore wind portfolios like this that quickly start to shift.

Of course, by Chief Executive, Henrik Poulsen’s own assessment, the utility already has a strong and differentiated competitive platform. And it’s this unique and well-tested format of undertaking early phase construction and build, before selling a majority stake that has become the highly regarded within this most pioneering of markets.

However, while Dong may well still be the European developer and utility that’s leading the charge, where the business goes others will surely follow. And the challenge of retaining a competitive balance sheet is by no means unique.

For onshore opportunists therefore, there’s a compelling business proposition that’s really starting to shape up, as the secondary market continues to evolve.

To date in 2013, we’ve already seen an unusually high volume of transactions and sales on the continent and new investors continue to enter the market.

Over this next phase, we’re sure to see initial investor fragmentation, as portfolios ebb and flow. However, as new industry participants wise up and look for increased margin, independently owned onshore asset pools will surely seek safety in increasing the size of their asset base.

Dong Energy might be moving out of the onshore wind energy market but its departure signals the start of an important new phase of onshore growth.

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