PAYING FOR OFFSHORE WIND

Offshore Wind Project Finance 101: Learning From Europe's Example
Mark Del Franco, 25 October 2011 (North American Windpower)

"Historically, European offshore wind projects were balance-sheet financed, typically by large utilities. However, several recent European offshore wind deals have been project financed, which could signal good news for U.S. developers seeking financing for offshore wind projects…Eight offshore wind deals have been project financed…[T]he 288 MW Meerwind project in the North Sea…was backed by U.S. investor Blackstone…

"Balance-sheet financing does have some clear advantages - namely, fewer parties involved, less risk and a cheaper cost of capital…However, project financing has become increasingly common, because it can reduce the amount of capital needed from an offshore wind project's sponsor, thus insulating the sponsor from risk…"

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"…[B]ecause more non-utility investors are willing to invest in offshore wind, they typically need to employ the project-finance model because they lack the deep pockets of, for example, a major European utility…[A]bout 30 banks have demonstrated an appetite for risk when it comes to offshore wind projects…[And] the offshore wind market has been strengthened by participation from…the major turbine manufacturers…

"…[T]he structure of the construction contracts, equipment supply agreements, warranties and service agreements…[as well as] what information is required for due diligence and risk allocation for offshore wind [has been settled in Europe]…[I]nformation contained in engineering and insurance reports - as well as risk allocation for weather risk, availability/performance risk during operation, and grid interruption risk - form the underpinning of the deal analysis, pricing and structuring…"