Floating Offshore Wind on Cusp of Unlocking Big Source of Finance, Experts Say

A major source of finance for offshore wind projects may soon
open up to the industry’s most important technological frontier:
floating turbines.

Non-recourse finance,�where lenders get repaid from the profits
of a project and have no claim over the assets of the borrower,
will likely be available to upcoming floating wind projects as the
market reaches an initial stage of maturity, experts say. That
would help to lower the cost of projects. Non-recourse lending
accounts for the majority of funding flowing to conventional
European offshore wind projects today.

So far, no floating projects have secured pure non-recourse
finance, “but the market is becoming ready for it,†said Clément
Weber, the floating wind expert at renewable energy financial
advisory firm Green Giraffe.

“The lenders involved in the first projects are likely to be
the project finance banks that are the most experienced in
bottom-fixed offshore wind. On the equity side, we see a clear
appetite from
oil and gas
, utilities, developers and independent power
producers,” Weber said in an email.

Two European projects, in particular, have paved the way, Weber
said. One of them,
WindFloat Atlantic
, was financed through a €60 million ($68
million) loan from the European Investment Bank in 2018. The
25-megawatt project off the coast of Portugal was commissioned last
month. It was developed by a consortium including the utilities EDP
and Engie, and the Spanish oil firm Repsol.

The other, Kincardine in Scotland, reached financial close last
month through a £380 million ($481 million) Certified Climate Bond
arranged by French bank Natixis. The 50-megawatt project, developed
by Spain’s Grupo Cobra, will be completed this year after the
effects of COVID-19 delayed progress.

“Several lenders have seriously looked at the technology, and
the financing of WindFloat Atlantic and Kincardine are opening the
way to non-recourse debt for future projects,†said Weber.

Non-recourse loans would lower floating wind’s costs

Non-recourse finance accounts for 58 percent of all capital
raised for new wind energy projects, though the level is usually
higher for offshore projects, according to trade association
WindEurope.

Lenders issued a record €16.4 billion ($18.5 billion) in
non-recourse debt for offshore projects in 2018,
according to

WindEurope
. The level dropped to €8.8 billion ($9.9 billion)
last year, the first time since 2012 that non-recourse finance had
been higher in onshore than offshore.    

Nevertheless, said WindEurope, debt financing conditions
continue to be favorable and non-recourse loans remain a preferred
route for unlocking affordable, long-term finance from a
diversified pool of investors including banks and institutional
lenders.

The arrival of non-recourse finance in floating wind will be a
vote of confidence in the maturity of the technology, said Andrei
Utkin, senior analyst for global power and renewables at IHS
Markit.

“We observe growing interest from different types of financial
players,†Utkin wrote in an email. “Financial players [such as]
infrastructure funds [and] banks will enter at the commercial
stage, when the technology is proven by demonstration projects and
technical risks are reduced.â€

In the view of Green Giraffe’s Weber, lenders should already
feel comfortable with floating wind platforms because the
technology has already been widely used in the oil and gas sector.
The current state of the floating wind market â€” roughly 10 years
on from the first prototypes â€” echoes the point at which
non-recourse financing first entered bottom-fixed offshore
wind.

Still, the sector is not there yet. The first floating
project to attract non-recourse funding will likely need to tick a
number of boxes, such as using a proven technology, having an
ironclad contract structure and featuring ample contingency budgets
and insurance.

The right kinds of government support and regulatory clarity
will also be key to opening up financing for the market. â€œThere
still remains uncertainty on governments’ and authorities’
support of projects, creating risk in planning and economics,â€
said Erik Rijkers, director of market development and strategy
at analyst firm Quest Floating Wind Energy.

“More open communication and commitment towards developers’
needs will reassure financiers, but recent
roadblocks in U.S.
and
U.K. bottom-fixed projects
prove a misinterpretation of
industry requirements exists or these requirements cannot be met.
This reflects on the floating industry.â€

The future of offshore wind: floating?

Floating platforms remain a key development in unlocking vast
new markets for offshore wind. And the technology is already
plummeting in price.

According to Weber, the levelized cost of energy for floating
wind has almost halved since the technology first emerged, dropping
from around €200 ($226) per megawatt-hour in the first pilot
projects to €110 ($124) per megawatt-hour in current tenders.

“The industry expects that the trend will continue in the next
10 years and that fixed and floating could be equally competitive
in the 2030s,†said Weber. “Reducing the real and perceived
risks and therefore the cost of financing will play a key role in
that decrease.â€

Source: FS – GreenTech Media
Floating Offshore Wind on Cusp of Unlocking Big Source of
Finance, Experts Say