Author: Johnny Gowdy and Kerry Hayes 

Recent weeks have seen mixed news for the offshore wind sector in the UK, including the positive announcement of the final investment decision for 588 MW Beatrice and the more disappointing news that the Neart na Gaoithe project has had its CfD withdrawn by the Low Carbon Contracts Company.

According to our analysis there is still an active portfolio of around 32 GW of offshore wind farms, including projects that are: in operation, pending construction, submitted for planning or in development.  Following an excess of projects being withdrawn, denied planning or cancelled on the western seaboard, the image on this side of the map is nowhere near as healthy as it is in the North Sea.

The Final Investment Decision for the £2.6 billion Beatrice project, to be located off the coast of Scotland, which obtained a contract for difference back in 2014, reminds us that the offshore wind sector clearly represents an attractive investment opportunity. The consortia consists of Scottish Southern Energy (SSE) as lead partner (40 per cent), while Copenhagen Infrastructure Partners have a 35 per cent stake and SDIC Power 25 per cent.

Who owns UK offshore wind?

It is interesting to look at the structure of the Beatrice consortium. SSE have chosen to partner with two investment funds; neither of which are ‘UK companies’. Our analysis suggests this is common place in the UK offshore wind sector.

The number of investors in UK offshore wind is still quite small.  Our analysis suggests that there are less than 30 companies, investors and other organisations that have an equity stake in UK offshore wind projects. The sector has seen a small number of investment funds, sovereign wealth and pension funds enter the market. Although the majority of UK offshore wind equity (approximately 26 GW) is held by the original project developers or by offshore energy developers who have either acquired projects or become co-developers.

In terms of the nationality of owners, given that the majority of UK project developers were major European utilities it is hardly surprising that a majority stake in UK offshore should be held by foreign owned companies.  Over recent years, the dominance of overseas companies has increased, thanks to decisions by UK utility Centrica disposing of its offshore wind portfolio, and foreign investors consequently purchasing the projects.


Nordic success

A particular trend in the offshore wind sector has been the increased ownership stake taken by Nordic energy companies who have offshore development experience, particularly from the oil and gas sector. These include companies like DONG, Statkraft, Fred Olsen, Vattenfall and Statoil who now own over 15 GW of the active portfolio.

Of these, DONG has been the most prolific investor and now has a portfolio of almost 8 GW of “active” UK windfarms (almost 24 per cent) of the portfolio. Impressively DONG received no leases and was not part of any winning consortia in the Round 3 lease round. They have therefore acquired the bulk of their portfolio by picking up assets from other developers and acting as a co-developer partner in consortia.

So just why have Nordic companies been so successful in UK offshore wind? Arguably answers include the fact they have spotted the opportunity to generate higher returns, have existing offshore energy expertise, better offshore development (and procurement) capability or maybe it is because they have a joined up industrial strategy and have been thinking ahead to the demise of North Sea Oil and Gas. In fact sticking with this last point, just this month we have seen oil and gas giant Shell announce their intention to create a “New Energy Unit” and re-enter the offshore wind market, having exited in 2008, after being accused of being “greedy and irresponsible” for pulling out of the London Array. Almost ten years later, Shell have joined up with Eneco and Van Oord to bid for 700 MW of offshore wind in Dutch waters and are pushing the Dutch government to triple the amount of offshore wind deployed by 2030. It is likely that new leasing rounds will be the best way for these kinds of companies to gain a foot hold in the market.

Regen are currently working with partners to look at whether we could support civic investors or pension funds with divesting out of fossil fuels and reinvesting into offshore wind.

If you are interested in discussing our work in this area, get in touch with Johnny Gowdy on 01392 494 399.