Offshore Wind back on the radar

Dr. Thomas Gabelmann, Partner

Recent reporting around year-end financial statements for fiscal year 2015 once again highlights the substantial impact that investments in large-scale generation projects have had on participants’ balance sheets and income statements. At the same time, the expansion of renewable energy generation is well underway across the industry, and investment budgets for the coming years have already been defined.

However, in our observation, only a limited number of utilities will realistically be able to achieve further growth in photovoltaic and onshore wind sectors — along with their associated goals of capacity expansion and attractive returns. These tend to be companies that, in recent years, have developed in-house project development expertise or have built strong alliances with project developers. In the current seller’s market that has prevailed in Germany for some time, the acquisition of ready-to-build or turnkey projects is generally only feasible for investors willing to accept correspondingly lower returns.

Is Offshore Wind a Viable Alternative Asset Class?
This question is increasingly being revisited. The offshore wind sector is gradually recovering from the challenges associated with the construction of its first generation of projects in the North and Baltic Seas. More and more installations are entering their operational phase. As such, the focus is now shifting beyond new construction to include optimization of operations in existing projects — often in collaboration with adjacent or upcoming neighboring wind parks.

The market for both equity and debt financing in offshore wind has become well established, and the asset class has successfully proven its bankability.

Currently ongoing financing processes include capital raising for projects still in development, as well as the sale of stakes in operational assets. Compared to PV and onshore wind, utilities engaging in offshore wind are often drawn to what they see as a more attractive risk-return profile. Moreover, institutional investors are also beginning to set return expectations that are broadly aligned with this level.

Project-specific characteristics determine the suitability of each participation opportunity for different investors — whether institutional or utility-based. Relevant factors include the maturity of the technology, operational strategy and cost risk, or financial structuring elements such as timing and predictability of cash flows.

Outlook
We are seeing a renewed interest in the offshore wind asset class among utilities that have not yet entered the market. A sound risk assessment can be based on experienced, offshore-savvy advisors, and opportunities for participation are now available in smaller volumes than in the past.

Of course, we are happy to support you with our transaction advisory expertise as you evaluate this asset class. For informal discussions, we are at your disposal at any time.

Please feel free to contact us:
Dr. Thomas Gabelmann