October 22, 2015

International offshore wind investors should learn the industry ropes in Europe before exploring the world’s wind energy growth markets.

That’s the message from JLL’s renewable energy experts ahead of the COP21 talks in Paris in December 2015, where world leaders and climate change campaigners will come together, tasked with achieving a worldwide, legally binding, agreement on climate change

“Countries like India, China and the USA know that they need to invest in green energy; offshore wind is likely to be a serious contender,” says Dominic Szanto, Head of Offshore wind at JLL.

“Away from Europe, growth is slow but the market is enormous.”

Offshore wind energy in Europe benefits from mature, largely government-supported and well-developed technology. From 2009 to 2014 the industry grew at a rate of 31 percent, on average each year, and a total of 8GW of operating capacity now exists – enough to power in excess of five million homes – and it represents a total investment of around US$25-30 billion.*

Elsewhere, the USA is the most attractive emerging renewable market and Szanto says there is sizeable potential profit for offshore wind investors, given the large east and west coast populations.

He says: “The Deepwater Wind project in Rhode Island, for example, is only five turbines but could represent a launch pad for American offshore wind.”

The Indian offshore wind industry is fledgling but earlier this year the government announced its intention to develop a ‘roadmap for further offshore provision’ and industry experts indicate it as a market to watch. China and Japan are also earmarked as offshore wind growth markets thanks to the huge demand for low-carbon energy; energy from offshore wind can be produced at scale and it’s viewed as a viable alternative to nuclear power.

Europe leads the way

Across the continent, the case for investment is compelling: “Institutional investors are moving into operational offshore wind, attracted by the sizeable investment volumes and 25-year stable, government-backed returns”, says Dane Wilkins, Head of renewable energy capital, JLL.

“Substantial opportunities exist to invest on both a levered and unlevered basis, alongside experienced utilities that are keen to develop long-term relationships with funders.”

Models for market entry

An influx of alternative financiers is fuelling growth in the sector. Utility companies have traditionally dominated investment in European offshore wind but two clear market models have emerged in recent years.

Szanto explains: “In the first of these, a developer – usually a large utility – will take a lead role in constructing and operating the wind farm and usually retain a significant share, often providing risk protection to a financial investor.”

For example, Danish giant DONG Energy recently closed the sale of 50 percent of Gode Wind 1, a 330MW German project, to Global Infrastructure Partners who financed the investment through an $850 million bond.
The other common model is project financing. Here, a team dedicated to that wind farm, with no clear lead operator, manages construction and operation.

This model has been popular in Germany, where the government backed Feed in Tariff provides a safety net for bank financing and similar deals are now closing in the Netherlands and the UK.

UK in turmoil?
The UK government’s recent decision to remove the Renewables Obligation next year marked a blow for both onshore and offshore wind projects. But existing farms and those with planning approval still qualify for funding and other governments are upping their game.

“Uncertainty undoubtedly exists over support for new UK projects, limiting the appeal of the sector for new developers, “adds Szanto.

“However Germany has shown no signs of halting its growth.  Up to 2,000 MW of new offshore wind capacity is expected to go online by the end of 2015 and, in the Netherlands, a new tender process designed specifically to appeal to financial and industrial consortia is expected to be run by the end of 2015.”

For investors speculating on the sector, opportunity abounds.

“The benefits of offshore wind are clear”, says Wilkins. “Projects are of sufficient size to allow $200m plus tickets, the greater strength and constancy of winds at sea mean generation capacity is higher, and the industry still enjoys wide government support.”

*JLL estimate


Dominic Szanto


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