Offshore Wind Fund Almost Half Way to $1.5 Billion Target

The first fund dedicated to supporting offshore wind-power projects has raised almost half of its 1 billion-pound ($1.5 billion) target, drawing support from pension investors and a major sovereign wealth manager.

The U.K. Green Investment Bank said it raised 463 million pounds for the fund and is continuing to seek capital for five to eight projects, said Ed Northam, head of investment banking at the Edinburgh-based institution.

The bank is backing offshore wind as an alternative to onshore turbines, noting turbines at sea face fewer planning hurdles, less opposition from residents and more predictable breezes. Its aim is to spur more projects, giving the industry the scale it needs to reduce costs shed its stigma as the most costly renewable technology.

“If we’re committed to decarbonizing the energy sector to achieve European targets and the commitment that the U.K. has signed up for, then the reality is that offshore wind has to play a major role,” Northam said by phone. “That’s why this fund is so important. It provides a vehicle for investors over a long-term horizon and passive investment opportunities that provide stable, predictable and low-risk returns.”

Members of Prime Minister David Cameron’s Conservative Party have said onshore renewables are blighting the countryside, limiting the government’s willingness to expand the industry further. That will leave the U.K. more dependent on offshore wind to meet European Union obligations to cut pollution. Power from offshore turbines currently costs about $176 a megawatt-hour, almost double the $86 price on land.

Bank’s Plan

The bank’s fund will take equity stakes of 10 percent to 30 percent in projects over 25 years, enabling existing investors such as utilities to re-invest capital in more facilities. The bank hopes this will help drive down costs of offshore wind.

“The U.K. is a relatively small island, so there is a natural limit to the amount of turbines and panels you can plant onshore,” Northam said. “These things combine to make the U.K. the leading and most attractive wind market globally.”

Northam didn’t identify current investors in the fund, saying only that it will continue to raise money through the rest of the year.

The Department of Energy & Climate Change in April last year awarded 16.6 billion pounds worth of contracts to eight projects including five offshore wind farms. Those guarantee the price generators receive for power, regardless of prevailing market prices.

Installed Capacity

Britain at the end of 2014 had 55 percent of all installed offshore wind farms, the largest amount anywhere, according to estimates from the European Wind Energy Association.

The GIB signaled in in 2012 that it would consider supporting the technology by investing in units that were already operating instead of just new projects. Those funds are just one of the new avenues opening for the industry that helped push investment in renewable energy to a record $310 billion last year, according to data compiled by Bloomberg.

“The financial sector has been looking for several years for ways to pool institutional money into structures that can invest their money with knowledge into a large portfolio of projects,” said Angus McCrone, senior analyst for Bloomberg New Energy Finance. “One way has been the yieldco. A second has been green bonds. Now, the Green Investment Bank is pioneering a third -- a platform for investing institutional funds into offshore wind.”

The fund is being managed through the bank’s regulated arm known as the U.K. Green Investment Bank Financial Services Ltd. Two projects under the GIB already have been transferred to the fund, including a 25 percent stake in a 90-megawatt wind farm operated by RWE Innogy GmbH. It’s also acquire a 20 percent share in a 317-megawatt project operated by Statkraft AS.

The bank has the option to buy the GIB’s 10 percent stake in RWE Innogy’s Gwynt y Mor project, Northam said.

“Now the fund is up and running, we’re less likely to rely on the GIB for assets, so we will engage directly with the market place,” Northam said. The fund has a five-year investment horizon.

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