Decisions on the financing of US offshore wind farms are needed quickly to ensure smooth execution of projects on the east and west coasts, advises a white paper from the Business Network for Offshore Wind.
According to ‘How Will Offshore Wind Reshape US Project Finance’, released during the network’s International Partnership Forum (IPF) 2019 event in New York City, a clear structure is needed to attract investments in the longer term.
Business Network for Offshore Wind chief executive Liz Burdock said: “Short-term, financing using safe harbour provisions may have an advantage but, with longer-term financing, a clear and well-defined structure is needed to attract the $60-70bn investments expected over the coming decade in the US.”
The white paper is based on discussions with finance experts that propose, in the medium term, the construction phase of an offshore wind park may need “separate mini-financing tools”, dividing up a project’s risks among suppliers, states and financial partners.
Ross Tyler, the network’s executive vice president, said: “Developers are retaining maximum flexibility with last minute choice in turbine technology for competitive advantage and are looking beyond the OEMs to make up equity shortfalls.
“Banks must analyse risks and seek comfort with lending against risks through mini-financing for specific parts of multiple projects. This might be the new tool that will spread risk and ultimately ensure success.”
Multi-project developers most likely will influence the building of regional supply chains to benefit business clusters under mini-contracts, as well as the sponsoring states, according to the document.
The white paper argues that states will need to “choose and then balance their priorities: price impact on ratepayers versus local job creation.”
Citing the state of New York as an example, the document says it plans to create 5000 jobs with its investment of $6bn for 9000MW of energy prior to 2035, while cautioning against higher costs for ratepayers.
The white paper focuses on several areas. Firstly, accuracy in wind resource measurement as this data impacts a project’s financing because each percentage of wind power can decrease or increase millions of dollars in revenues.
Secondly, different financing mechanisms between US and European lenders question the “appetite” for risks in the US.
The white paper states: “Europe, which started with 10 banks supporting offshore wind investments, now has approximately 45 banks willing to lend to the offshore wind sector. Further, Europe is witnessing a growing appetite from institutional investors.
“This not only adds a source of liquidity to the market, but also helps keep the cost of capital competitive.
“Banks providing debt financing in the US have a preference for a single or very limited number of contractors. The US also has a strong institutional market, but it’s unclear if it has an appetite for offshore wind construction risk.”
The document also found that experience from Taiwan and Europe show it is difficult to have both a strong local supply chain participation and a low price for power.
“As scale in offshore wind is important for building the business case to support local job creation and investment in manufacturing, multi-project developers may be preferred borrowers as they provide ways for financiers to spread the risks.
“Developers and their financial partners are going to need a pipeline of multiple projects in order to satisfy the state supply chain needs through a regional approach.”
The white paper notes that the industry and US states view ports with high importance, needing them to “attract offshore wind fabrication facilities to strengthen and increase the competitiveness of the US supply chain.”