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New ways of financing could significantly cut the cost of offshore wind power, according to analysts at FTI Consultants.
Finance fees and interest make up 28 per cent of overall expenditure on offshore wind projects, the consultancy said in a report published on Thursday.
Analysts found that a change of 1 percentage point to the cost of debt resulted in an average 3.4 per cent change to the levelised cost of energy.
Aris Karcanias, managing director at FTI Consulting, said: “Offshore wind energy economics are strongly governed by life cycle financial costs, and the potential to reduce these is considerable.”
The sector is increasingly seen as a “safe harbour” by investors, on a par with airports and highways, which the consultancy said is creating more competition among lenders and pushing down finance costs.
“Corporate and institutional investors looking for low risk, long-term and predictable yield investments are signing on pension, insurance and sovereign wealth funds, to name a few,” said Athanasia Arapogianni, consultant and member of the FTI-CL Energy practice.
“Innovative financing and an increase in the number of players in offshore wind finance are creating more competition among lenders, which will lead to lower charges, fees and risk premiums on interest rates.”
The Green Investment Bank in March announced its first investments in offshore windfarms at construction stage. Previously, the green lender had only backed projects once they were already built.
Utilities such as RWE have embraced the opportunities for refinancing to make their tight investment budgets stretch further.
FTI estimates that 46 per cent of required worldwide investment by 2020 will be met by recycled capital.
“Replacement of equity with debt is creating a secondary market in refinancing offshore wind projects,” said Karcanias. “A clear pattern is emerging of how offshore wind construction will be financed in the future. Capital recycling and the lower capital expenditure levels achieved through learning curve experience are benefits expected to contribute to decreasing annual capital requirements for construction.”
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