The rise of renewable energy
The rise of renewable energy has continued unabated, despite the uncertainties in the global economy, and lingering doubts over government policy. Renewables represent an ever larger portion of the globe’s total energy mix, and among these, wind power is seen as one of the most viable alternatives.
To some extent, the growth of wind power has been driven by technological advances. This is particularly true of offshore locations, which are widely regarded as the ideal environment for multi-megawatt wind turbines. As a result, offshore wind generation has accelerated even more dramatically, reaching growth rates of around 31% in 2012 compared to 2011, according to the European Wind Energy Association.
"Offshore wind power is exciting because there are so many opportunities"
“Offshore wind power is exciting because there are so many opportunities compared to the limited number of feasible sites on land for onshore wind, and many of these have already been developed,” says Ronald Dorlas, Director Structured Finance Power & Renewable Energy at ING. “Although it is much more technologically complex and larger to develop from a financing perspective, wind developers are increasingly turning to the ocean as efficiencies increase.”
Such has been the rapid uptake in wind power projects in recent years that, according to World Wildlife Foundation (WWF), around a quarter of the world’s electricity needs could be met by wind by 2050 if the current growth rates of almost 20% continue.
In Europe, which is driving the shift towards offshore wind, growth is largely the result of government policies designed to curb carbon dioxide emissions. The European Union has set ambitious targets for renewables to account for 20% of the bloc’s total energy consumption by 2020. In Germany, these targets are even more ambitious, with the country aiming to generate 35% of its energy from renewables within the same timeframe.
“The countries most involved are mainly in Europe and around the North Sea; Belgium, Denmark, France, Germany, the Netherlands, and the UK, where governments are providing a reliable framework for the offshore wind industry to build on,” explains Dana Alvarez, Structured Finance at ING in Germany. “Other countries are still catching up. Renewable energies are still more expensive than conventional coal or gas, and so are reliant on subsidies. It is up to each government to decide how much subsidies are available.”
The offshore revolution
In 2010, a new offshore wind project was launched in Germany by leading local developer wpd that will provide green energy to approximately 370,000 households – a major contribution to the nation’s transition to renewables. Project Butendiek is located some 30 km west of the North Sea island of Sylt, and requires the establishment of 80 Siemens SWT 3.6 turbines on monopile foundations, that will generate a total power of 288 MW by 2015.
Wpd are responsible for the construction of Butendiek, and for the technical and commercial management during the operational phases. In February 2013, they set out to assemble the € 1,023 million in required financing from a group of investors comprising industrial partners, large institutional investors, development banks, and nine major commercial banks, including ING.
“Our pitch relied on the extensive track record we have in onshore wind and in other renewables like solar.”
Seeing strong growth potential for offshore windpower projects in the years ahead, ING had been actively looking for renewable energy transactions and its approach to Butendiek was a direct result of this target increase. “We had already decided to be active in the sector when we heard about Butendiek, so we knew we wanted to be involved,” says Dorlas. “Our pitch relied on the extensive track record we have in onshore wind and in other renewables like solar.”
ING appointed consultants to do a technical and environmental review of the project, to address all aspects of the financing, permits and construction work. The transaction was executed by a joint team from Structured Finance and Financial Markets in Frankfurt and Amsterdam with the support from Risk Management and Legal in Frankfurt and Amsterdam. Strong internal coordination was required, as the financing and the interest rate swap come from two different entities within ING Group.
“We see that financing in the offshore sector is still limiting the number of projects that can be done at any one time,” says ING’s Alvarez. “This is starting to change as more utility companies, turbine manufacturers, and pension funds are also investing. We look forward to supporting developers like WPD in the years ahead and have been actively looking for similar transactions since Butendiek.”