Offshore wind energy investments have largely been an elite playground for Europe’s utilities. But new sources of funding are arriving as the compelling business case presented by offshore wind becomes more widely recognised.

Investing in the future
In 2012, a UK-oriented PWC report* listed a wide range of funding sources for offshore wind energy, including equity investors (including UK and non-UK utilities, IPPs, oil and gas companies and OEMs, as well as a range of financial investors such as pension funds) and debt funders (comprising commercial banks, the EIB, the GIB, ECAs and institutional investors through project bonds). The report also predicted growing corporate interest from Europe and other countries.

One group on that long list, in particular, is beginning to make its presence felt, initially focusing on operational wind park investments, but looking likely to encompass earlier-stage developments as in-house expertise and experience grows: “financial investors”.

One of the first such investors to enter the offshore wind industry is PensionDanmark, a Danish pension fund with some €19 billion under management. In 2011, together with another large Danish pension fund, PKA, PensionDanmark invested over €740m to acquire 50 percent of DONG Energy’s Anholt wind park. Anholt marked the second major investment for PensionDanmark in offshore wind, following the 2010 acquisition of 50 percent of DONG Energy’s Nysted wind park for approximately €100m.

Pension funds are emerging as an important source of funding for offshore wind energy, fuelled by low fixed income returns and unpredictable equity markets. While such organisations typically have a “social” agenda, it’s not so much climate sustainability as it is sustainable, predictable returns that drive their choices. From their perspective, offshore wind is now being seen as a competitive and highly attractive asset offering a low-risk, high-return addition to infrastructure investment portfolios. In fact, in the current investment climate, offshore wind is far less volatile than the stock market, and it easily outperforms government bonds, achieving an annual return of 6-8 percent. Investors can often take advantage of fixed-price deals backed by government guarantees and, in the case of Anholt, PensionDanmark and PKA were even able to contractually protect themselves against construction delays or budget overruns.

If they so chose, Europe’s pension funds could pump many billions into the industry. But caution is warranted for new entrants. According to Claus Stampe, PensionDanmark’s Chief Investment Officer, offshore wind investments are hardly a walk in the park. “Despite the financial upsides, offshore wind investments aren’t the easiest to make. Contracts are lengthy and a great deal of expertise is required. And there are political risks to monitor, too.”

That complexity isn’t deterring PensionDanmark, however. In June, the pension fund made further moves in the sector, investing in the emerging US market with a conditional mezzanine loan of some €1.46m for Cape Wind, America’s first offshore wind park. It’s all part of sizeable investments in infrastructure (USD 1.1bn to date, mostly in green assets), with a further €1.61bn on its way over the next 4-5 years. Half will be managed by an in-house team, the other half by newly established Copenhagen Infrastructure Partners.

Of course, given Denmark’s track record in wind energy, it might be tempting to think that offshore wind would be unusually prioritised by Danish-based pension funds, in particular. But a look around the international scene reveals similar growth in interest from both funds and corporates. Take, for example, Japan’s Marubeni Corporation.

Marubeni Corporation is a major force in the trading of products and provision of services across a broad range of sectors. It’s no newcomer to the worldwide energy industry either, with a 10,000+MW net portfolio (30,000+MW gross) that spans both traditional and renewable energy forms. At present, the company is strongly on the move with major new investments in offshore wind around the globe.

Marubeni’s wind energy adventures began during the 1990s in its native Japan, well before the company’s current global expansion plans took hold, with a number of onshore projects. Then, in late 2011, Marubeni’s London office announced it would acquire 49.9 percent of Gunfleet Sands wind park, paying approximately £200m for its stake. The deal included a long-term purchase agreement for associated power production and green certificates. It was the first investment by a Japanese-based company in offshore wind. But certainly not the last.

In 2012 and 2013, Marubeni has further ramped up its investments both upstream and downstream in the supply chain. Over the next 2-3 years, The company plans to grow its renewables portfolio to account for 10 percent of its total power generation portfolio, and sees a “tremendous growth opportunity” in the European offshore wind market.

For the offshore wind sector, the growing influence of these new investors provides a welcome boost for the years to come – particularly as individual projects become larger, demanding bigger investments that few can afford to finance. In fact, for the utilities themselves, the ability to attract the right mix of powerful, well-heeled investors may be crucial to realising further business development opportunities.

“In a situation where yields are currently at such a low level that it potentially erodes the purchasing power of our members savings PensionDanmark is looking for a number of alternative assets. In the next few years, PensionDanmark plans to increase our investments in infrastructure and real estate (alternative investment with a stable cash flow) to approximately 20 per cent of our assets.”

“Offshore Wind Cost Reduction Pathways Study”

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