Banking on offshore

With the offshore wind sector already garnering government support and increasingly piquing the interest of the private sector, the banking sector will become progressively more involved in this industry as installed capacity grows and market share increases. That’s the verdict of a recent Frost & Sullivan report on trends in the European wind energy market.

Anticipating that the offshore wind industry will grow in relation to its bigger, onshore counterpart, the report estimates that installed capacity of offshore wind will climb from 1.3MW in 2008 to 18.8MW by 2015. By then Frost & Sullivan expects Germany (with a predicted installed capacity of 7217MW) to have overtaken the UK (6230MW) at the head of the European offshore wind energy league.

‘The banking sector’s interest in the offshore wind industry has been accelerating rapidly in the past year and more so since the second half of 2009,’ said Frost & Sullivan industry analyst Gouri Kumar. He expects this interest to grow stronger in the coming years, he said, because of the sector’s irrefutable size, potential and opportunity and the preexisting involvement of both government and investment banks in efforts to rescue some of the most important projects last year.

‘Bank involvement in the European offshore wind industry is a relatively new phenomenon,’ noted Kumar. Bank distaste for the sector’s inherent risks – lengthy permitting processes, harsh environment locations, higher project economics and more expensive O&M procedures – is abating as countries like the UK and Germany spearhead efforts to reduce costs related to turbine technology as well as improving installation methods and accessibility, said Kumar.

With significantly greater financial risk and investment involved, banks tend to partner with other banks for offshore wind projects, adding to the complexity of the deals.

‘Investors are trying to overcome these risks with innovative approaches and out-of-the-box thinking,’ he said. ‘We see trends of innovative financing structures involving multiple deals and parties and increasingly cases of non-recourse financing, for example Centrica’s 50% sale and non-recourse financing, with 14 banks, of the UK’s Lynn, Dowsing and Glens of Foudland wind farms,’ Kumar told OE. He cited the EIB’s first offshore wind financing for the Belwind project 46km offshore Belgium, as another significant move. OE

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