Spanish utility Iberdrola has struck a deal worth more than £1bn to sell a stake in what will be one of the UK’s largest offshore wind farms to a branch of Australian investment bank Macquarie.
Macquarie’s Green Investment Group subsidiary has agreed a deal for a “significant minority stake” in the East Anglia One wind farm off the Suffolk coast which is under construction by ScottishPower, Iberdrola’s UK energy business, according to people familiar with the negotiations. The group is expected to partially fund the deal, for a stake of slightly below 50 per cent, using third-party debt. It declined to comment.
The deal, which is expected to be announced on Monday, is the latest example of infrastructure investors and pension funds backing offshore wind farms at an early stage as the perceived risk of such projects has fallen sharply since the first one was installed in Danish waters in 1991.
The first turbine was installed at East Anglia One this summer but the entire 714 megawatt project will not be finished until next year, when Iberdrola claims it will be capable of generating electricity for nearly 600,000 homes.
Early offshore wind farms were generally funded from a developer’s own reserves but perceived risk has dropped as the industry has matured and technology has advanced, making it cheaper than ever before to build projects.
Investors in UK offshore wind farms also benefit from a guaranteed price per unit of electricity generated from the government — in the case of East Anglia One this is £119 per megawatt hour through a contract agreed in 2015.
Offshore wind farm developers such as Iberdrola are keen to sell stakes at earlier stages to investors so they can use the cash for further expansion. Between 2018 and 2022, Iberdrola has set out to spend €13.3bn on renewable energy projects globally in areas including the UK, US, as well as its home market of Spain. Last year it sold its final fossil fuel generation assets in the UK for £700m.
The involvement of infrastructure and pension funds in the sector has also allowed developers to lower the costs of projects as such investors are generally willing to receive lower returns for reduced risk.
Developers are under pressure to cut costs as governments are keen to reduce subsidies and, in some cases, want projects to be built subsidy-free.
The UK government is currently holding a competition for offshore wind contracts but developers have not been able to bid at a guaranteed price per unit of electricity higher than £56 per megawatt hour for projects to be delivered in 2023-24 and £53/MWh for wind farms that will be up and running in 2024-25.
Competition in the offshore wind sector is increasing. Oil majors such as Royal Dutch Shell are expanding their wind businesses while European utilities Engie and EDP said they would combine their wind assets into a joint venture to become one of the biggest developers in the world.
Macquarie acquired the Green Investment Group, formerly known as the Green Investment Bank, from the UK government in 2017 in a £2.3bn privatisation deal.
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