Lead Session Chair:
Stephan Barth, Managing Director, ForWind - Center for Wind Energy Research, Germany
Athanasia Arapogianni (1) F P Aris Karcanias (1)
(1) FTI consulting, LONDON, United Kingdom
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Presenter's biographyBiographies are supplied directly by presenters at OFFSHORE 2015 and are published here unedited
Athanasia is a Consultant in FTI Consulting’s Economic and Financial Consulting practice in London. She boasts extensive experience in wind energy. Through her work as a senior research officer in the European Wind Energy Association, Athanasia has developed an acute understanding of the European wind power industry and in particular of the financing aspects of offshore wind. While at EWEA, she was a co-author of the report "Where is the money coming from? Financing offshore wind farms" in 2013 and while at FTI she is a co-author of the recently published report on "Innovative financing of offshore wind" in 2014.
Innovative financing of offshore wind
With a market value in excess of €21bn, nearly 7 GW of offshore wind power capacity was operating globally by the end of 2013. The majority of that construction has been funded by utilities. The scale of offshore wind, however, is greater than the utility sector can lift on its own, given the constraints on their finances imposed by the global economic downturn and the resulting shortfall in both demand for electricity and profits from their traditional business. New sources of debt and equity are required along with innovative financial engineering to support the scale of offshore wind deployment envisaged.
Our analysis focuses on the fact that government support for offshore wind in future will be conditional on the industry lowering its costs. Without a significant reduction in the levelised cost of energy (LCOE), investor confidence will wane as government support weakens and power purchase prices fall as a result. The scope for bringing down the cost of generation of offshore wind power is large, and one of the options available is lowering the cost of finance.
Main body of abstract
Our analysis reveals that financial fees and interest on debt repayments make up a significant share of the lifecycle cost of an offshore wind farm. Although financial costs are not normally expressed in terms of their share of overall capital expenditure (CAPEX), identification of the size of that slice of CAPEX underlines the significant potential for reducing LCOE by cutting the cost of finance.
The funding structures serving offshore wind projects have gone through several transformations as the sector has matured. In the past, utility equity has largely been used for the construction phase with other equity investors moving in once the project is operational. The evidence now points to a growing range of equity investors forming partnerships with strong and experienced offshore wind project developers and utilities to become increasingly active in financing offshore wind projects, before they become operational. On the debt side, several projects have secured loans for construction without recourse to assets other than the project's future cash flow. Non-recourse debt prior and during construction has been provided by a number of commercial and state banks with support from export credit agencies, following the established pattern for construction of other infrastructure assets.
Additionally, we find that the divestment of equity shares in operational assets is also enabling experienced utility owners and independent project developers to recycle capital back into construction of further offshore wind projects. Replacement of equity with debt is creating a secondary market in refinancing offshore wind projects with a proven operational record.
Infrastructure assets are associated with stable and growing demand for essential services (such as energy), sound regulation (such as in electricity transmission) and long-term predictability of revenues (such as that provided by power purchase arrangements for electricity). The growing broad acceptance of offshore wind's status as an infrastructure asset is unlocking equity and debt from money markets previously closed to the sector. Our analysis demonstrates the new types of investors and their position in financing wind energy throughout the different phases of projects.
Offshore wind is now perceived as an infrastructure asset and our analysis will present different options for securing innovative financing structures. It will demonstrate the relation between strong political commitment and lowering the cost and risk in the offshore wind sector. Finally, the analysis concludes with projections on the expected involvement of different investors in the different phases of offshore wind showcasing the financial feasibility of offshore wind and innovative tailor-made financial engineering.