New investment vehicles are making it easier for renewable energy developers to attract financing. While banking appetite may vary, institutional investors offer tremendous liquidity. Historically, yield has been relatively thin and institutional investors tended to shy away from the energy sector. Recently, greater market liquidity has attracted greater interest among investors — and new instruments are being devised to attract new investor classes to the energy finance market.
For example, three models have been utilized for financing offshore wind projects. The first is the utility equity model, in which a utility finances the project entirely on its balance sheet. Until recently, offshore wind was mainly funded in this manner. Second is the developer model: the company develops, builds and finances a project itself, thereby retaining the construction risk, before selling down its equity interest once commercial operation is achieved. In the third project finance/developer model, construction risks are assumed by the equity investors, as well as by commercial bank lenders via construction/term financing.
Success in the wind sector may be due, in part, to integrated offerings of technology and finance, which should be strongly positioned to address the challenges project developers currently face. Siemens Financial Services (SFS) supported Kawailoa Wind, the largest wind farm in Hawaii, with $50 million of debt financing. In addition, the 69-MW wind facility uses 30 Siemens wind turbine generators. Developers often seek assistance with both financing and technology, and Siemens’ ability to invest its own capital to support its technology helps instill the necessary trust to attract the remaining debt and equity capital necessary to finance the project.
A number of external factors determine the structure and technology used for a wind power project, including location and the wind regime. New turbines on the market now provide high energy yield at low wind sites. By analyzing the global market, companies can use their resources and technology in the most effective and efficient ways possible.
The Gemini offshore wind farm in the North Sea is one of the largest in the world. SFS supported the 600-MW wind power plant consisting of 150 Siemens wind turbines, with a 20 percent equity investment. In total, over 20 parties were involved, making Gemini the world’s largest project-financed offshore wind farm. This multi-source financing model shows the increased need for capital investment in today’s market. Additionally, the wide range of investors in this transaction proves the broad-based appetite for offshore wind assets.
The North American market has been a big focus in recent years, with a great deal of onshore wind activity in the U.S. and Canada. Up until now, these wind projects have been located onshore and are driven mainly by renewable portfolio standards imposed at the state or provincial level. However, the Gemini offshore wind farm is a great example of the type of offshore projects that are attracting increasing investor interest in Europe and may eventually be pursued in North America.
Renewable energy is now one of the greatest single asset classes held by SFS, and revenue from renewables has increased significantly since 2005. As the demand for energy continues to expand, the world needs new ideas to further promote renewable power generation.
We are fortunate to play a role in developing, building, and investing in these projects. The cost of wind-generated power has declined at a steady pace as the technology has evolved. Despite uncertainty over the extension of production tax credits in the US, Siemens has a full slate of projects currently in development and construction. We are on the right trajectory to see continued long-term investing success in this sector and see the market continue to expand in for the near future.
Lead image: Wind turbines via Shutterstock