NewEnergyNews: TODAY’S STUDY: WHO WILL PAY FOR EUROPE’S OFFSHORE WIND AMBITIONS?

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YESTERDAY

  • TODAY’S STUDY: A Way For New Energy To Meet Peak Demand
  • QUICK NEWS, December 5: Trial Of The Century Coming On Climate; The Wind-Solar Synergy; The Still Rising Sales Of Cars With Plugs
  • THE DAY BEFORE

  • Weekend Video: Trump Truth And Climate Change
  • Weekend Video: The Daily Show Talks Pipeline Politics
  • Weekend Video: Beyond Polar Bears – The Real Science Of Climate Change
  • THE DAY BEFORE THE DAY BEFORE

  • FRIDAY WORLD HEADLINE-Aussie Farmers Worrying About Climate Change
  • FRIDAY WORLD HEADLINE-The Climate Change Solution At Hand, Part 1
  • FRIDAY WORLD HEADLINE-The Climate Change Solution At Hand, Part 2
  • FRIDAY WORLD HEADLINE-New Energy And Historic Buildings In Europe
  • THE DAY BEFORE THAT

    THINGS-TO-THINK-ABOUT THURSDAY, December 1:

  • TTTA Thursday-First Daughter Ivanka May Fight For Climate
  • TTTA Thursday-Low Profile High Power Ocean Wind Energy
  • TTTA Thursday-A Visionary Solar Power Plant
  • TTTA Thursday-EVs Have A Growth Path
  • AND THE DAY BEFORE THAT

  • ORIGINAL REPORTING: How The Clean Power Plan Drove The Utility Power Mix Transition
  • ORIGINAL REPORTING: How Utilities Are Answering The Distributed Energy Resources Challenge
  • ORIGINAL REPORTING: Looking At New Rates To Unlock The Utility Of The Future
  • THE LAST DAY UP HERE

  • TODAY’S STUDY: The Power Potential Of Personal Wind
  • QUICK NEWS, November 29: Climate Change Forces Hard Choices In Alaska; New Energy To Utilities-“Can’t-Beat-Us-So-Join-Us”; Fact-Checking Trump Hot Air On Wind
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    Some of Anne's contributions:

  • Another Tipping Point: US Coal Supply Decline So Real Even West Virginia Concurs (REPORT), November 26, 2013
  • SOLAR FOR ME BUT NOT FOR THEE ~ Xcel's Push to Undermine Rooftop Solar, September 20, 2013
  • NEW BILLS AND NEW BIRDS in Colorado's recent session, May 20, 2013
  • Lies, damned lies and politicians (October 8, 2012)
  • Colorado's Elegant Solution to Fracking (April 23, 2012)
  • Shale Gas: From Geologic Bubble to Economic Bubble (March 15, 2012)
  • Taken for granted no more (February 5, 2012)
  • The Republican clown car circus (January 6, 2012)
  • Twenty-Somethings of Colorado With Skin in the Game (November 22, 2011)
  • Occupy, Xcel, and the Mother of All Cliffs (October 31, 2011)
  • Boulder Can Own Its Power With Distributed Generation (June 7, 2011)
  • The Plunging Cost of Renewables and Boulder's Energy Future (April 19, 2011)
  • Paddling Down the River Denial (January 12, 2011)
  • The Fox (News) That Jumped the Shark (December 16, 2010)
  • Click here for an archive of Butterfield columns

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  • TODAY AT NewEnergyNews, December 6:

  • TODAY’S STUDY: How To Balance Competing Solar Interests
  • QUICK NEWS, December 6: Sliver Of Hope? Al Gore In Climate Change Meet With Donald Trump; The Opportunity In New Energy; Google Seizing New Energy Opportunity

    Monday, January 06, 2014

    TODAY’S STUDY: WHO WILL PAY FOR EUROPE’S OFFSHORE WIND AMBITIONS?

    Where's the money coming from? Financing offshore wind farms

    November 2013 (European Wind Energy Association)

    Executive Summary

    The long-term stable market and regulatory framework challenge

    The major challenge increasingly facing the offshore wind industry is regulatory risk, which can refer to unclear or conflicting political support for offshore wind, uncertainty with grid connection regimes, or lack of a long-term stable market and regulatory framework. It is critical that national governments address this risk, not least by working with the European Commission to agree a binding 2030 renewable energy target at the earliest opportunity.

    The funding challenge

    The European offshore wind energy industry needs to attract between €90 billion and €123 billion (bn) by 2020 to meet its deployment target of 40 GW.

    Should regulatory instability prevent the offshore industry from reaching its 40 GW target by 2020, even a conservative assumption of 25 GW would still require between €50 bn and €69 bn over the next seven years. However, availability of financing now appears less likely to constrain the growth of offshore wind energy than regulatory risk.

    Funding is available

    Power producers have so far been the main investors in offshore wind using their balance sheets. As the scale of investment grows, new entrants are becoming active in different aspects of project development. Engineering, procurement construction and installation companies (EPCI), wind turbine manufacturers, oil and gas companies and corporate investors are already investing in offshore wind according to their specific strengths and capabilities. Infrastructure funds and institutional investors have already made progress in taking construction risk and enhancing the financing landscape for offshore wind.

    Moreover, innovative funding structures are now being used. The role of development banks and Export Credit Agencies (ECAs) has been significant in attracting commercial lenders to the sector. There are now over 30 banks with experience of lending to offshore wind and there are more examples of them lending to projects earlier and taking construction risk.

    Risky business?

    Despite the challenging funding requirements, both traditional and new investors seem optimistic and willing to continue to invest in offshore wind. According to them, the most important risk factor is not the availability of funding but regulatory instability. Evidently, the high level of uncertainty that comes with changing regulatory frameworks has slowed down offshore wind energy deployment in many European countries, not least in the two largest markets, the UK and Germany. Nevertheless, as long as Europe ensures a stable framework for offshore wind, the required capital can be channelled into the sector. For this to happen, agreement on a binding 2030 renewable energy target at EU level is crucial.

    Looking specifically at construction risks, grid availability risk was considered the greatest concern by industry y overall. This is one of the most significant barriers to deployment, particularly in markets where project sponsors are not responsible for grid connection.

    Policy recommendations

    • Create a long-term stable and clear market and regulatory framework based in a 2030 binding renewable energy target at EU level

    Regulatory risk relating to support mechanisms is considered the most important challenge to offshore wind deployment.

    • Develop predictable grid connection regimes, with clear allocation of responsibility and de-risked cost recovery mechanisms

    Resolving delays in grid connection and the uncertainty they create for wind farm developers and financiers is fundamental to avoid delays and cost overruns.

    • Maintain so-called shallow grid connection charges as best practice for financing electricity infrastructure

    Why should offshore wind energy become the first power generation technology to pay for grid connection through deep grid connection regimes? Grid development benefits all producers and consumers and its costs and benefits should be socialised.

    • Provide liquidity and credit support

    Multilaterals and Export Credit Agencies are successful in attracting new sources of capital. They should be encouraged to invest and provide liquidity to the sector and in structures that facilitate the entry of new sources of capital to the sector

    • Engage consumers in an open dialogue on the cost of energy

    With an increased focus on the cost of energy bills for consumers, transparent perception of the cost of support to offshore wind energy and its significant benefits, should be addressed.

    Plugging the funding gap

    A number of funding models are expected to have a role in funding offshore wind projects in the period to 2020. These are shown below, together with recommendations for attracting these forms of capital.

    Sources of finance/Key findings

    • Power producers continue to play a dominant role in financing offshore wind farms. However pressure on balance sheets since the financial crisis has required new sources of debt and equity investment. Inves- tors have responded through joint venturing, project financing and oth- er innovative solutions.

    • While there are clear strategic ration- ales for EPCI, OEM and oil and gas majors to invest in offshore wind, uptake is still limited. In the case of EPCI and OEM, they lack the finan- cial strength to take equity stakes with the exception of conglomerates with investment arms such Siemens. For oil and gas majors offshore wind competes for capital with alternative investments.

    • There are notable examples of third party investors increasingly financing offshore wind including pension funds such as PensionDanmark. However such funds will seek to participate alongside other strong investors and may require firm guarantees.

    • Infrastructure funds tend to invest in the higher risk construction phase and aim to make returns from exiting projects once they have begun operation and the risk (and returns) are lower. Some struggle to generate sufficient returns from offshore wind, or are not comfortable with the risk profile compared to other infrastructure classes. A number of larger funds such as Marguerite are nevertheless attracted by the large investment in offshore wind.

    • Development banks and ECAs have played a crucial role in attracting a number of lenders to the sector. There are now more than 30 commercial banks with experience of lending to offshore wind and increasingly banks are lending to projects earlier and taking construction risk. Innovation of project and contractual structures facilitate this investment.

    Contracting and risks/Key findings

    Among construction risks, grid availabilability was the greatest concern to the indus- try. It is seen as one of the most significant barriers to deployment, particularly in markets where project sponsors are not responsible for grid connection.

    The contracting structure and credit quality of suppliers and contractors are also important risks and the sector has suffered from a large number of bankruptcies which have contributed to project delays. EPCI wraps are frequently dis- cussed as a solution that crucially cov- ers interface risks. However, the dependency on one contractor and benefits of multi-contracting such as cost savings along with the flexibility of separate par- ties able to manage risks within their core competencies, prevents this from becoming the norm.

    In terms of operating risks, regulatory risk was seen as the most important, highlighting the damage caused by sudden and at times retroactive adjustments to support mechanisms in European countries. Issues with performance have affected a number of projects and the ability of warranties to cover these components is still a major concern. Contingency funds can be used as a way of managing this…

    Plugging the funding gap

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