Offshore Wind Fund Almost Half Way to $1.5 Billion Target

(Bloomberg) — 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.

To contact the reporter on this story:
Louise Downing in London at
ldowning4@bloomberg.net

To contact the editors responsible for this story:
Reed Landberg at
landberg@bloomberg.net
Will Wade

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