If there's one thing that Ferdinand Magellan, the European explorer who first landed in the area now known as Rhode Island didn't have to do battle with when sailing up the coast, it was navigating offshore wind turbines.
It was relative plain sailing. Something that - buoyed by his success - no doubt encouraged him to score some smart political points when he wrote that the natives were the most advanced of all the East Coast tribes.
In doing so, he set a path for the state to pursue what became a pretty progressive streak. The point?
He went out on a limb. Took a risk. And the risk paid off. If there's one thing that Ferdinand Magellan, the European explorer who first landed in the area now known as Rhode Island didn't have to do battle with when sailing up the coast, it was navigating offshore wind turbines.
It was relative plain sailing. Something that - buoyed by his success - no doubt encouraged him to score some smart political points when he wrote that the natives were the most advanced of all the East Coast tribes.
In doing so, he set a path for the state to pursue what became a pretty progressive streak. The point?
He went out on a limb. Took a risk. And the risk paid off.
Scroll forwards almost five hundred years and once again there’s change afoot - with entrepreneurial developers sailing in to challenge the status quo.
This time, the ambitions of the developers are far less significant than outright colonisation. Although, based on a quick flick through some of the local newspapers earlier this week, you’d be forgiven for thinking otherwise.
By way of a quick overview, many inhabitants are concerned about the impact that any prospective development may have on the region's booming fishing and maritime market.
While others are expressing worries over the placement of substations and cabling that will provide a vital connection between generators and the grid.
All sensible anxieties of course - and an accurate reflection of the challenges that many of the offshore developers within European waters continue to face.
However, what’s interesting about this small pocket of the international offshore wind development market is that despite the continued industry progress, the fact remains that there’s still no steel in the water.
True, Cape Wind inches closer to financial close and Deepwater Wind continues to make good ground. However, even when you dial in the recent developments at Fishermen's Atlantic City Windfarm, three projects do not a market make.
And that’s the wider line of thinking that really now has to shift.
True, thanks to an extremely competitive domestic liquefied natural gas (LNG) market, North American offshore wind may take some time to command anywhere near the status of its European counterpart.
However, the fact remains that despite a rapidly expanding pipeline and transmission network, Boston and its surrounding suburbs still remains largely dependent on over 60 supersized sea shipments of imported LNG – that arrive in Boston harbour under tight security, over 60 times a year.
The imports are vital because the current pipeline and energy transmission infrastructure that shifts the stuff produced within the US from its source to cities such as Boston, simply isn’t there. And it remains cheaper and more profitable to source the stuff from overseas.
And profits of course are the point. At the conference this week, AWEA reiterated time and again the numerous potential benefits of operating turbines offshore. All of which of course, were entirely valid.
Nevertheless, as securing the final few percentage points of finance becomes an increasing project priority for some of the flagship schemes, the dominance of the overseas LNG market in Boston is a timely reminder that providing peak power must also produce persuasive profits.
Scroll forwards almost five hundred years and once again there’s change afoot - with entrepreneurial developers sailing in to challenge the status quo.
This time, the ambitions of the developers are far less significant than outright colonisation. Although, based on a quick flick through some of the local newspapers earlier this week, you’d be forgiven for thinking otherwise.
By way of a quick overview, many inhabitants are concerned about the impact that any prospective development may have on the region's booming fishing and maritime market.
While others are expressing worries over the placement of substations and cabling that will provide a vital connection between generators and the grid.
All sensible anxieties of course - and an accurate reflection of the challenges that many of the offshore developers within European waters continue to face.
However, what’s interesting about this small pocket of the international offshore wind development market is that despite the continued industry progress, the fact remains that there’s still no steel in the water.
True, Cape Wind inches closer to financial close and Deepwater Wind continues to make good ground. However, even when you dial in the recent developments at Fishermen's Atlantic City Windfarm, three projects do not a market make.
And that’s the wider line of thinking that really now has to shift.
True, thanks to an extremely competitive domestic liquefied natural gas (LNG) market, North American offshore wind may take some time to command anywhere near the status of its European counterpart.
However, the fact remains that despite a rapidly expanding pipeline and transmission network, Boston and its surrounding suburbs still remains largely dependent on over 60 supersized sea shipments of imported LNG – that arrive in Boston harbour under tight security, over 60 times a year.
The imports are vital because the current pipeline and energy transmission infrastructure that shifts the stuff produced within the US from its source to cities such as Boston, simply isn’t there. And it remains cheaper and more profitable to source the stuff from overseas.
And profits of course are the point. At the conference this week, AWEA reiterated time and again the numerous potential benefits of operating turbines offshore. All of which of course, were entirely valid.
Nevertheless, as securing the final few percentage points of finance becomes an increasing project priority for some of the flagship schemes, the dominance of the overseas LNG market in Boston is a timely reminder that providing peak power must also produce persuasive profits.
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If politics is a performance, then this past week has all the ingredients of an Elizabethan drama.
There’s been the usual cast of characters - the good, the bad and the ugly. There’s been the multitude of plot lines, muddled lives and misinterpretations. There have even been a couple of dastardly organisations thrown in, to boot.
Sadly though, while fiction and fairy tales are restricted to the stage, this latest political performance risks becoming more than just another pantomime dame.
And in doing so, it demonstrates the very real consequences of meddling with something as critical as a domestic energy market.
In this instance it’s the UK energy sector that’s once again at the sharp end. In reality however, the situation could easily be transposed across a whole multitude of different countries, to create a similarly chilling commercial effect.
So what’s happened and who’s upset the apple cart?
Sadly, no one individual or organisation can be singled out. It’s never that easy. Although when taking a moment to step back from the minutiae of the debate it’s quickly apparent that there’s a series of interconnected issues that are only exasperated by a communications vacuum that’s failed to be tackled by those at the top.
In real terms, what that means is that, playing out against a wider drive towards domestic decarbonisation and energy security, we’ve got the conflicting challenges of driving up future investment, while driving down consumer bills.
Two highly charged areas of debate that, while indirectly connected, need not be as closely aligned as many would have you think.
Whatever the case, that’s not stopped SSE from deciding to call time on all future power and energy investments until after the 2015 election, following a political promise made by Labour Party leader Ed Milliband to freeze energy prices, should his party return to power.
It’s a move that, in the more immediate future, could threaten the 504MW Galloper wind farm, while putting further Round 3 projects in doubt.
Nevertheless, it’s the longer-term impact that this has on future investor confidence that ought to be of greater concern. And more specifically, it’s the way in which the utilities are portrayed and lambasted that must be addressed.
Sure, the Big Six have been reporting some bumper profits in 2013. And sure, nobody – least of all the hard-pressed consumer – likes an energy bill price hike.
However, a capitalist market needs to be able find its own level. And while short-term political interference might win quick votes, it does nothing to address the real issue of what people are really willing to pay for.
As is the case throughout Europe and around the world, the painful truth is that a move towards energy security and decarbonisation simply doesn’t occur overnight. It doesn’t come without a significant upfront investment either.
Populist talk about the so-called ‘cost of living’ might command front pages, but let’s be careful not to confuse the knee jerk reaction of the consumer with the need for future energy investment.
In addressing critics earlier in the week, SSE suggested that the most recent price rise was never a good thing to do but argued that if it became the catalyst for a debate about future domestic spending and investment, then that’s no bad thing.
Time then for greater clarity and leadership vision – not just from the utilities but also from the politicians and the investors – who, collectively, all stand to gain.
Investment in energy generating infrastructure is never easy and it’s always a bit of a performance. However, let’s try to share and celebrate the future energy vision. Otherwise we risk turning a critically acclaimed hit into a farce.
Two thousand two hundred and seventy days doesn’t sound like all that long.
Nevertheless that’s the available timeframe during which EU member states must begin to pick up the pace of clean energy development, generation and use.
And, despite its recent financial and economic turmoil, Ireland is no exception.
For, in common with other EU member states, Ireland is legally obliged to ensure that by 2020, at least 16% of all energy consumed is generated from renewables.
It’s also the primary reason why the Irish Wind Energy Association (IWEA) expects to see €4.7bn invested in onshore wind energy over the next 6 years.
Indeed, by the end of September alone, 119 new initiatives had signed contracts to accept grid connections.
That was a notable generator submission uptick. And something that was encouraged as part of the Gate 3 Offer project - a government led initiative to prompt generators to increase the volume of grid connection applications.
In any case, what this all means for Irish wind power is that the country is suddenly set for a significant surge in wind energy operating capacity.
2.75GW to be precise. A figure that almost doubles the current level of electricity generated by wind in Ireland and that looks set to provide a significant uplift in employment and export potential to boot.
And with Ireland already having generated 5.5% of gross final energy through renewable means in 2010, that focus on wind energy as an export market has become an increasingly attractive economic opportunity.
It’s also the reason why, all the way back in January, senior UK and Irish politicians clamoured to claim credit for the establishment of a memorandum of understanding for the large-scale exportation of electricity to the UK grid.
Under the terms of the deal, associated Irish wind developers and generators would effectively be able to benefit from UK clean energy incentives, while transporting power through high capacity subsea interconnectors, running from coast to coast.
Based on comments made by Irish energy minister, Pat Rabbitte, last week, the initial timeframe to sign and commit to the deal may have slipped. However, the minister maintained that a deal would be formalised and in place early in 2014. Something that Pat thinks will boost the Irish economy while enabling the UK to hit its ambitious 2020 targets.
Meanwhile, the clock keeps ticking. For everyone’s sake, let’s hope he’s right.
It’s amazing what a Euro buys you these days…
Six Vestas manufacturing units for a start.
In the Danish turbine manufacturers’ latest deal, the business will offload both of its machining units and four of its casting units to German industrial conglomerate VTC Partners.
Overall, Vestas is largely shrouding the deal in secrecy – as whilst cash has yet to change hands, it would appear that Vestas will receive up to €25million if the factory units reach certain undisclosed criteria.
The manufacturer also claims that having outsourced the machining and casting of its equipment, it will save in the region of €30million over the next two years.
The agreement comes hot on the heals of another deal Vestas announced in the last fortnight – a strategic tie up with Mitsubishi Heavy Industries to co-develop offshore wind turbines.
Seen together both developments offer an insight into the degree of retrenchment the Danish business is going through as it looks to stem its losses, and also where it’s placing its future bets.
As onshore wind has slowed in the developed markets, and the emerging markets face tighter competition, it certainly makes sense for the business to secure a place in the offshore market – a sector largely dominated by Siemens.
To its credit, however, Vestas has recognised that innovation in the offshore market will be key.
The tie-up with Mitsubishi will be to launch an 8MW offshore machine, one of the largest available.
The firm has also made headway in the floating turbine industry, likely to be a significant area of the market in Japan, having worked with EDP and Principle Power to install a prototype off the Portuguese coast in 2011, ahead of a number of other designs.
Whether these measures will be enough to propel Vestas back to the market dominance it once held remains to be seen, but a focussed strategy with clear aims, objectives and deliverables should, in the short term at least, keep the rating agencies away from further downgrades.
More innovative financing will be essential in years to come if the wind industry is to meet key investment targets, stressed senior industry figures speaking at our annual members conference, earlier this week.
In other words, the money is there. It’s ready to be put to work and invested.
However, the real challenge lies in developing better financial models through which risk can be better managed and through which capital can be more easily deployed.
It’s a contentious view that will undoubtedly ruffle some feathers.
It’ll also put a spanner in the works amongst the veritable flotilla of European finance ministers, too.
Especially since without tackling this potential market lethargy, there is a growing danger that this will only serve to increase the prospect of a market hiatus. It’s a situation that would subsequently leave EU member states well short of meeting their 2020 clean energy targets.
The thing is though, this really needn’t spell doom and gloom.
Since the North American market – while admittedly still struggling with moving out what feels like a perpetual twelve-month short-term cycle of tax credit renewal – has already evolved its financial modelling and structures quite considerably.
That’s facilitated a wider range of renewable energy investment opportunities and has brought about further sector growth.
Indeed, the area where the US has historically outshone the Europe is in the commoditisation of investment in the form of bonds and securitisation.
As such, if credit ratings agencies can be brought on board to assess (risky) offshore wind energy, then the issuance of listed, rated bonds alongside an increase in the number of initial public offerings can go some way to change the way investment in the sector is perceived.
Time then, for the European markets to begin to follow suit. And in doing so, to develop more innovative financial structures to access alternative sources of debt.
This combined with smaller equity ticket sizes and the careful management of remote risk for yield investors, can help bring together several smaller financiers, minimising and spreading future threats.
Irrespective, there’s little argument that if Europe is to meet its ambitious wind energy investment targets, institutional investors, both at home and abroad, must take a more proactive stance both in future project development and more specifically, in financial services innovation.
Moreover, while political and regulatory certainty is a must, so too is the development of more innovative financial structures that will turn offshore wind into a non-alternative asset class in its own right.
The ‘giant vampire squid, wrapped around the face of humanity’, as it was memorably, and perhaps unfairly, described by Rolling Stone magazine, isn’t known for its poor investment decisions
So Goldman Sachs’ $1.46billion investment in Danish utility and leading offshore wind developer, Dong Energy, won’t have been taken lightly.
Goldman was joined in its investment by two Danish Pension funds, Arbejdsmarkedets Tillægspension (ATP) and Pension Forsikringsaktieselskab (PFA), who will top up the investment by $401m and $146m, respectively. In total the investment will land the three investors with a combined 26% stake in the state-owned firm.
For Goldman, the decision comes hot on the heels of a number of renewable energy investments, largely in the emerging markets, in recent months.
In May, the firm committed to investing $487million over the next five years in Japanese renewable projects, whilst also taking stakes in Indian renewable assets worth $135million.
On that basis alone, it is unlikely that this will be the last major play that Goldman Sachs will make in the global renewable energy field in the coming months.
For Dong, the decision marks the first successful step on a road to strengthening its balance sheet – a strategy driven by CEO Henrik Poulsen.
It’s a move, unfortunately, motivated by necessity – Dong has $6.6billion worth of debt, largely rated BBB by the major agencies. To not only de-risk the liability held by the Danish state, but also to move the firm towards an eventual initial public offering before 2017, Poulsen needs to prove that the business is developing investment grade assets, and can attract the interest of the markets.
It’s essentially why attracting the interest of the largely conservative Goldman Sachs is a coup that should strengthen his position within the firm.
And whilst committing Dong to maintain its oil and gas interests, Poulsen is ensuing that he can effectively hedge against any future storms the offshore wind sector may see.
All in all, smart management from the newish man at the top.
Doomsayers be damned.
The US government may well have partially closed last week. Congress may well have failed to agree a new budget and the country may well risk running out of cash.
But the financial markets kept on moving. And for the team at Pattern Energy, that meant closing its initial public offering of 16,000,000 shares. Priced at $22 a share and raising $352m that was quite the coup, too.
More than that, though. It was also a US wind developer first. And, with share prices pushed up 10% on the first day of public trading, it values the California-based firm at roughly $1.24bn.
Undoubtedly this fresh wave of confidence is supported and driven by what is an already strong and well-diversified operating portfolio. Reinforced by a smart business model, to boot.
Currently the independent power company operates eight wind farms that generate revenue in the US, Canada and Chile and it has awareness of a further pipeline of acquisition of projects under development and in the wings.
That pipeline is continuing to be built out by Pattern Energy Group LP, a development team of 32 and the power company’s primary shareholder. Further detail that will of course bring a fresh wave of confidence to investors as the portfolio continues to diversify outside of the US, develop and grow.
And that international diversification is critical.
Particularly given the on running saga associated with the Production Tax Credit (PTC) – where US industry associations are working hard to avoid a potential expiry on 31st December.
However, while many within the domestic US market may view the pursuit of emerging markets such as Chile as a curious and uneasy paradox. For the power producers looking for strong and stable future shareholder returns, it’s a critical step.
That’s not to say of course that the US wind energy market can easily be dismissed - particularly since the threat of tax changes has created a short term construction and development blip.
However, it is perhaps another key milestone in the evolution of core western energy markets. And, as the latest in a string of international wind power IPO’s demonstrate, it’s a timely reminder of the future finance and investment potential that the North American markets need to really tap into and inspire.
The community of Caithness might be up in arms about a recent small-scale turbine blade break but spare a thought for the Chinese coastal city of Guangdong.
Here, the local community is not only battling to recover from the strongest storm to hit the western pacific this year – it’s also faced with an increasingly expensive operation to restore vital power and transmission lines to the area.
To date, best estimates place the damage from Typhoon Usagi at a little over $500m.
That bill – which continues to rise – includes the loss of three major power lines brought down within the region. Damage to the local nuclear facility. And significant operational losses at the Honghaiwan Wind Farm.
Indeed, on the wind farm alone – a site that utilises 25 of the early Vestas V47 units – eight of the wind turbines have been blown down, with a further nine having suffered blade breakages and failures.
That, according to the wind farm manager, puts the total repair bill at $16m, which, despite the ageing turbines, presents a not inconsiderable loss.
But here’s the thing. Typhoons are commonplace along that part of the Pacific coast. And this particular wind farm was hit exactly ten years back, when a smaller categorised storm knocked out 13 of the units, leaving the developer and insurer to foot the unexpected cost.
So the threat of typhoons is nothing new. And while the wind yield might for the most part be high, the site’s position presents ongoing opportunities and threats.
However, the story of Honghaiwan is also indicative of a wider market trend.
For, as wind developers proliferate into natural catastrophe zones – tempted either by the prospect of good returns, cheap development costs or the opportunity to plug a hole in a local energy mix – delivering stable investor returns can become a tricky game to predict.
It’s a similar story for many of the Caribbean islands that have, until recently, relied almost exclusively on expensive imported diesel fuel to power an ageing energy fleet.
For wind and solar energy developers, the opportunity is often too great to overlook. And many local operators have been quick to deliver some impressive returns and build out near monopolies in undisputed local waters.
However, as portfolios grow and as developers take increasingly large chunks out of the domestic energy mix, the necessity to safeguard and protect the fleet – not just in terms of investor outlay but also as an energy generating asset in its own right – has become increasingly critical.
Opportunistic local developers may well have made some early gains but if they are to truly secure their dominant local positions, they’d do well to learn lessons from the likes of Typhoon Usagi, and take heed.
In a nondescript North London suburb, late on Tuesday night, there was a power-cut.
In a curious quirk of fate it was the very same suburb that Ed Miliband, leader of the UK Labour Party currently resides.
Earlier that day, he’d been addressing his annual party conference in Brighton, where he unveiled his key – and controversial – energy policy to cap UK bills.
For those who may have missed the commentary and speculation as to what the Labour leader’s plans would mean for UK energy if he were elected, here’s a quick recap.
Essentially, if Labour returned to office in 2015, aspirational Ed would force the energy companies to freeze consumer energy bills for two years.
In the following days chaos ensued.
Labour colleagues jumped to his side, congratulating him on what was described as a brave and fair policy that would support hard hit consumers.
While the Conservative and Liberal Democrat Coalition Government were spitting feathers over a policy that would strangle energy investment in future projects; with two of the major utilities operating in the UK (Centrica and SSE) collectively seeing £1billion wiped off their combined market value overnight.
Evidently then, the market has already provided it’s knee jerk reaction.
However, in the cold light of day, what would the policy mean for UK consumers, businesses, renewables and wider energy investment?
In the first instance, and since the privatisation of the UK energy utilities market in the late 1980s and early 1990s it’s worth remembering a not insignificant market regulator, known as Ofgem. Ofgem, as older readers may recall, was quickly handed the power to regulate the energy markets and ensure UK consumers paid a fair price.
How effective this body has been in the preceding years is of course open to debate. And historically the UK energy market has been characterised by chronic under investment and uncertainty. Two facts that have led many to the conclusion that either the energy firms have been putting profit before investment (still good news for the pension funds), or that consumer prices remain too low to provide adequate future investment.
For wind energy, a sector that requires commitment and backing from the utilities, the concern is that reduced incomes will see a slow down in the pace of development.
That’s a situation that forces the government to go cap in hand to overseas sovereign wealth funds. For many, that is an uneasy thought. And it’s not an easy route to follow either – check out the UK nuclear industry for more details.
Now, unpicking Ed’s policy in this column isn’t possible. However, what is evident is that with the markets already fair from stable, suddenly it injects a whole host of fresh industry unknowns.
Will the utilities ramp up prices in the short term, in a bid to fix the rate high and compensate for any potential shortfall and loss?
Is this perceived artificial price fixing something that’s even legal under current EU directives and international law?
And with the prices fixed for 24 months, and with the market faced with a potential investment hiatus, how does this benefit the UK consumer – and protect him against real rate rises - in the future?
Because let’s be clear; given the escalating cost associated with importing and extracting oil and gas, those bills are only ever going to rise.
Ed may be looking to save the UK tax payer £120, for two consecutive years but if that’s the true value placed on the UK energy market, then it’s no wonder that many within the market have been speculating that it’s not just the inhabitants of a north London suburb that’ll be left in the dark.
The acquisition announcement last week concerning PNE Wind’s purchase of three offshore wind projects from Bard Engineering shouldn’t surprise.
After all, the high-profile financial and operational battles that have been playing out at Bard Engineering have inevitably resulted in some quick-fire sales.
Sales that have provided a welcome boost to the balance sheet and that have helped to significantly de-risk the German business. However, that’s not the really interesting element.
The curious part is the price paid.
For, at just €17m for the three North Sea Atlantis projects (I, II and III), PNE Wind has landed itself a potentially lucrative set of offshore wind projects that are already in the early stages of planning and approval.
Sure, construction is still a fair way off and sure, Bard has negotiated a smart set of variable closing conditions that could result in subsequent payment instalments.
However, that doesn’t distract from the sheer size and scale of the initiatives. And that alone speaks volumes for the escalating ambitions of the developer.
Indeed, over the past thirty-six months it appears that PNE Wind – a business that was listed on the Frankfurt Stock Exchange all the way back in 1998 – has suddenly found another gear.
It’s a shift that started in August of 2011.
The firm had recently confirmed its appointment by the Scottish Forestry Commission to assist it in the development of onshore wind farms and it had sold exclusivity rights to its first offshore project, Nautilus II. The developer, therefore, was generating good cash flow and was in a high spirits.
It was a mood that wasn’t going to disappear.
For twelve months later – in August 2012 – the firm sold three offshore wind farms – Gode I, II and III to DONG Energy. The first two of these three projects are scheduled for completion in 2015 and the third project is in the final stages of permitting and approval.
Confidence, therefore, has been high for some time. And it’s this level of ambition that’s no doubt provided that additional shot in the arm to not only acquire a majority stake in one of its key competitors, WK Nord AG, but that’s ultimately led it to take on additional project risk through this latest development deal.
For the 180 staff, led by Martin Billhardt, that provides a strong incentive to continue to grow – with the recent bond issuance having helped bolster the balance sheet and finance future growth.
In real terms, while this has loaded the developer with considerable upfront costs, it has also enabled it to double its existing presence in the North Sea.
Inevitably, it’s a well-calculated risk that’s to a large extent dependent on the German political elite maintaining the existing subsidy and support status quo.
In recent years, and with the decline of the domestic nuclear market, that’s been taken for granted. However, grid connections continue to cause headaches and the German population is heading to the polling stations this weekend.
For now, stability and confidence remains – and for the likes of PNE Wind, that means that maintaining momentum and moving, fast.
UXO – the three-letter acronym that strikes fear into the hearts of any offshore wind developer.
For quite apart from the risk of detonation, the issue of unexploded munitions is a costly headache.
And one that, certainly in the early development days, planners of offshore wind farms hadn’t foreseen.
However, there are now increasingly promising signs that the problem is moving towards the top of the renewable energy agenda.
Last month the Construction Industry Research And Information Association (CIRIA) confirmed a working agreement with Maritime Asset Security Ltd (MAST) to develop a risk management framework for UXO in support of near and far shore maritime construction projects.
It’s an interesting solution to a problem that has historically bedeviled the oil and gas industry in the North Sea.
Now though, with offshore wind projects being developed in places such as Helgoland – a post-war dumping ground for munitions – the project risk means that this unfortunate post war European overhang is putting pressure on costs.
Indeed it’s estimated that between 600,000 and 1,000,000 naval mines were deployed in European waters in World War II. The RAF alone dropped 48,000. Records from other air forces, along with location details are largely unknown.
In further unfortunate news for German offshore wind, TenneT disclosed this week that it has called in Swedish surveying business, MMT, to deal with UXO for the HelWin2 HVDC and HVAC cable links in a contract that will extend into 2014.
Good news for firms like MMT of course, although the risks to personnel carrying out this task cannot be underestimated.
And for the likes of TenneT – that is already facing escalating costs and considerable delays – it’s another ill-timed hurdle in the race to connect German offshore wind farms to the Germany’s industrial heart.
There is a curious paradox to all of this though. Since it’s the materials that were designed for destruction that are now holding back the construction of progressive and cooperatively developed European energy infrastructure.
And that’s not the end of it. Since the handling of such devices is not an issue that can be dealt with quickly.
Locating and safely disposing of offshore munitions is an expensive and time-consuming task. And it’s adding considerably to future time pressures and project costs.
There isn’t, unfortunately, a quick fix to the problem, although on the upside, opportunities for offshore surveying firms will clearly present themselves.
Over time the industry will probably evolve a fairly expedient response to the issue, but in the interim, it’s an issue that is part and parcel offshore development. And, like convoluted weather windows and natural delays. the problem will no doubt continue to test the patience of the European developer community.
This time last year, German entrepreneur Willi Balz was a happy man. What’s more, it wasn’t his day job that was causing him to smile.
For he’d just spent the weekend racing his Maserati Tipo 61 ‘Birdcage’ at what had been a particularly sunny weekend at the 2012 Goodwood Revival. For those who’ve not yet had a chance to go, it’s a time warp of an event, that attracts significant international interest; taking place just off England’s south coast.
This year however, his car collection was present but Willi wasn’t racing. And on this, the Monday-after-the-weekend-before, he’s unlikely to be in high spirits.
That’s because last week the man that was the chief executive officer and founder of the ambitious German developer Windreich, “withdrew” from his post, following the firm having filed for insolvency earlier in September.
The latest sorry twist caps a corporate tale that has been playing out very publicly for a number of years and that’s led to a series of management and structural changes throughout the firm. For Willi these changes have been critical in realising his vision of building out increasingly ambitious initiatives.
However, for those investors on the outside looking in, they’ve only served to heighten a sense of unpredictability and potential drama.
Indeed, only earlier this year the firm caught the attention of the German authorities, resulting in an early morning office raid, following suggestions that it had engaged in fraud and manipulated its balance sheet.
Whatever the case, following the firm’s file for insolvency and with investors circling in the wings, it was clear that in order to safeguard pre-existing projects and the operational structure of the business, Balz had no choice but to go.
Viewed through the eyes of the private investor, this set of circumstances of course, is by no means rare. Far from it in fact.
Since over and above the financial viability of the business, it’s imperative that both the management and prospective investment teams see eye to eye.
Invariably, investors – particularly when entering at such a critical corporate juncture – are looking for safety, security and stability. And perhaps most significantly, a healthy shot of confidence that will see the business deliver.
That management style and set of personality traits are not those typically displayed by an entrepreneurial founder – who’s fought from the bottom, up.
Or by those individuals who are unafraid of taking high stake, carefully calculated risks, provided of course, that the rewards are right.
Quite aside from the specifics of this particular case, it is boardroom bust ups like this that offer a curious insight into a market that continues to mature.
Naturally there’s no doubting the aptitude and strength of many of the most significant management teams currently in place at the very top of the market.
However, as the Balz case shows – and as the Engel instance demonstrated earlier in August – high profile executives quickly become corporate lightening rods. Especially when, while they’re quite comfortable overseeing rapid periods of growth, they are perhaps less sure-footed when the market twists and turns.
Moreover, the latest high profile departure demonstrates that having the right management style, for the right audience, at the right time, really matters.
Balz is a highly successful entrepreneur and a gifted driver, to boot. Windreich may have slipped through his fingers but rest assured this won’t be his final lap.
Who knew that a cable could be so expensive?
Dong Energy, clearly, when it announced this week that they had sold a power cable to the London Array offshore wind farm to a consortium made up of Barclays Infrastructure Funds Management and Mitsubishi Corporation for 4.1billion Danish Kroner – roughly £460m.
With the sale, DONG, and its project partners for the development, E.ON and Masdar, will, in theory, have off-loaded the operations and maintenance responsibilities for the cable – which, given the liabilities we’ve seen associated with offshore wind cabling, makes sound financial sense.
But, whilst the theory holds water, it also raises some interesting questions about the involvement of investors and asset managers in offshore infrastructure.
Speaking hypothetically, whilst the extra income from the sale will be useful to the developers; export cables are the conduit by which the developer makes its money. After all, if the electricity generated by the wind farm isn’t reaching the grid, then the project owner isn’t earning an income.
And whilst some of this cost may be borne by the insurance provider, in reality, it is certainly in the best interests of the project owners to ensure that the export cable is managed proficiently.
So, is there a moral hazard for owners once cable assets have been sold? It’s an opinion we’ve heard quietly voiced in the industry, but until the time comes that we see, publicly at least, a substantial fault with an independently owned export cable we simply don’t know.
Like so much of the offshore wind industry, there are parts of the sector that are still feeling their way in the dark and the OFTO regime has yet to be fully tested.
And whilst it isn’t practicable, or necessarily viable, for project owners to be responsible for every asset in the development portfolio, there needs to be an awareness of the liabilities really lie.
Likewise for the investment community, there needs to be a commensurate awareness of what they’re agreeing to take on.
The offshore wind industry can seem like the collision of two worlds - that of the investor and that of the engineer.
Managing these two disparate realms may yet prove to be the industry’s biggest challenge.
Jim McColl knows a thing or too about shifting up.
To many within the wind energy markets he’s still a relative unknown. Although in truth, the role that he plays within the sector has grown rapidly – albeit not out there in the field but in the boardroom and behind closed doors.
In part, that’s been helped by a number of strategic acquisitions that he’s made within the specialist gearbox engineering and manufacturing space, under the umbrella of the Clyde Blowers brand.
That umbrella business, which was formed in 1924, initially as a locomotive boiler-cleaning specialist, has evolved quite considerably since. Indeed, the past twenty years have been particularly busy, following a buying spree that started with Jim taking a 30% stake in what was then an under invested, loss-making firm.
However, in less than a decade that financial position was quickly reset, with the firm now acting as a business incubator and hub for a portfolio of specialist manufacturing and engineering firms.
And so it was that in September 2008, Jim bought David Brown Gear Systems for a reported £368m. Then in November 2011, he acquired the 900-person strong Finnish gearbox manufacturer, Moventas, for €100m, after it filed for bankruptcy.
That means that in just a few years he’s developed an enviable product set, market share and international footprint, that’s led to a string of lucrative contracts with many of the leading turbine manufacturers and developers.
It also meant that he’s developed an attractive long-term revenue stream, with major steps already having been made to secure and build new relationships in key emerging markets such as China, India and South America.
It’s a strategy that both Moventas and David Brown have benefitted from considerably of late, enabling both firms to win high profile work with the likes of Vestas, Alstom, E.ON and RWE.
However, it’s one of David Brown’s most recent contract wins that that’s sparked the real interest.
For, in February of last year, the specialist firm won a long-term supply collaboration contract with Samsung Heavy Industries, to design and develop a gearbox for its much-anticipated 7MW machine. That’s the very same prototype unit that arrived in Narec late last month, to undergo preliminary stress tests.
It remains a significant deal. And it’s in part the formation of that key client relationship that’s sparked the latest Clyde Bowers portfolio reshuffle and shift.
For, in winning the work for Samsung, and in continuing to build out the wind energy client base within both specialist brands, McColl has been able to establish and launch a new UK based company that’s focused exclusively on servicing the needs of the sector.
That’s good news for future industry innovation, that’s good news for the UK supply chain and that’s good news for the wider market. Particularly since it marks a bright spot in tough market and could spell the start of a renewed period of growth.
Some may argue that the sale of one business unit to another within a wider umbrella group is less about corporate growth and more a case of reshuffling the pack.
And to some extent that may well ring true – with financial incentives and the ability to streamline costs remaining key.
However, as McColl has demonstrated throughout his tenure at Clyde Bowers, the ability to build businesses and brands is as much about understanding the opportunity as it is about timing. And for Clyde Blowers, it’s time to change gear.
According to the Guinness Book of World Records, the furthest distance a boomerang has ever been thrown is 427 metres. It didn’t come back.
Australian wind energy lobbyists are hoping for a far greater feat in the coming months, as the future of large-scale wind energy hangs in the balance.
It’s not all bad news, mind. For a relatively small, but significant development from the Antipodean wind market this week, saw Australian developer Infigen secure planning approval for a 120MW development in New South Wales.
Significantly, the project planners had successfully overcome a well-orchestrated campaign by a local opposition group to derail the project.
This campaign, like many anti-wind protest movements had been driven by claims that wind turbines are detrimental to health and are solely responsible for increasing domestic energy bills.
However, with the Australian Federal Election taking place this weekend, which according to many pollsters may see the election of Liberal party leader Tony Abbott and his Conservative coalition, the future of domestic wind remains far from certain.
Indeed, Abbott and his advisers have already made clear earlier in the summer that they would have an interest in diluting the renewable energy target down from its current level of 41,000GW.
It doesn’t help of course, that the country is the globe’s largest exporter of coal, and is therefore slightly in hock to a carbon heavy industry that provides jobs, tax revenue and security. Any paradigmatic shift away from this status quo will always be difficult to engender.
That’s a frustrating but painful truth, since Australian wind energy continues to offer real potential.
The country’s major urban conurbations are spread around the coast, so a distributed power supply makes sense. By the same token, the centre of the continent is rich in wind resource and free of large conurbations that should, in theory, ensure the relatively easy approval of wind projects.
This, coupled with the proximity of Australia to the emerging Asian economies (and in particular the Chinese wind market) should also act as a key driver.
Goldwind’s 165MW Gullen Range project is a real example of this, where the wind turbine manufacturer has provided 30% in equity for the project.
It’s because of this that – in theory at least - few doubt that Australia could become one of the worlds most successful onshore wind markets.
However, with a potential shift in the political support structures on the cards, and with the energy markets still hooked on carbon, achieving this vision is by no means getting easier.
Australia already has over 50 wind farms in operation and a growing capacity base, so the early-stage momentum is complete.
However, with political support on the wane, there’s a growing concern that once initial investor enthusiasm dwindles, they’ve got themselves an even harder job of getting it to come back.
Five years ago India, the world’s fastest growing economy, bolstered its overseas foreign exchange reserves by $92bn. In the space of just twelve months.
That was – and remains – an impressive feat for the BRIC economy. Providing many overseas investors with a shot of confidence to deploy capital and invest.
And invest they did. Best estimates suggest that India is the fifth largest installed global wind capacity and three years ago its growth rate was the world’s highest.
As a result, wind power within India now accounts for almost 10% of installed capacity and generates 2% of the country’s power.
Suzlon, an Indian firm that’s now the fifth largest turbine manufacturer in the world, characterises much of this growth.
Headquartered in Pune and with an employee base of over 13,000, the firm has a presence in over 32 countries and benefits from a 22GW installed capacity base.
However, while it’s rise up through the ranks mirrors the wider Indian economic picture, so too do its latest woes.
Earlier this year the firm reported record quarterly losses as business stalled under mounting debts.
For, while the firm grew rapidly through the boom years, much of this international expansion was built on an over reliance on credit. Something that’s led to significant problems further down the track, as executives struggle to manage and keep a handle on the growing debt.
India too is already feeling the pain, with currency reserves at an all time low and with foreign investors exposed to significant currency risk as the economy splutters.
Many observers believe that India’s financial pain is self-inflicted, with annual growth declining over a three-year period as investors tire of corruption, bureaucracy and a chronic under investment in local infrastructure.
That’s not stopped some investors from continuing to commit of course, with Goldman Sachs having recently deployed $135m in local developer, ReNew Power – a commitment that follows an initial $200m capital injection in 2011.
The investment for many, underlined a bullish commitment to the market, during a time when many of its peers had paused to review and take stock.
Whatever the case, Goldman’s Indian investment remains a rarity in a market where only a few years ago there was a scramble to gain a foothold and commit.
This, combined with the country’s renewable energy credit system (REC) left hanging by a thread following insufficient enforcement and falling manufacturing and technology costs, presents India with a mountain to climb.
Especially when it comes to regaining international financier and investor confidence and trust.
Sure, blame for the freefall of the rupee and India’s wider political and economic malaise by no means sits solely at the feet of the domestic wind energy market.
Nevertheless, with much of the recent growth built on the availability, access and ease of cheap credit, it’s increasingly clear that future market growth cannot be driven by developer ambition and sheer bloody-mindedness alone.
Rather sector success is dependent on a long-term shift in domestic energy policy, coupled with a wider commitment to infrastructure investment.
Time then to rebuild. BRIC by BRIC.
There’s a common line of thinking in the City that suggests that politics would be so much more straightforward, were it not for meddling ministers.
And that doing business – irrespective of where in the world you operate - would be far easier without having to toe the local political line.
For, quite apart from your political creed, politicians can divide as much as they unite. With the ability for governmental departments to consistently smother fresh entrepreneurial spirit, etched into the history of many an aspiring firm.
However, once in a while a divisive issue comes to the fore that is in danger of being chronically misrepresented – from both sides and at every level.
And that as a result, it becomes necessary to step back, create some clarity and separate the fact from the fiction.
So it is that we come to the delicate issue of property prices, wind turbines and the fiefdom of the self-appointed protectors of the countryside.
Let’s dial it back a little.
For in this particular instance it’s a UK-specific issue that serves as a microcosm of a far wider international energy debate.
Earlier in the summer, an aspiring minister commissioned Frontier Economics to calculate how house prices will be affected by a series of UK energy projects.
The as yet unpublished report is intended to encompass offshore wind, overhead power lines, shale gas, anaerobic digestion plants and nuclear power. So far, so good.
Only here’s the thing. The report was commissioned by the Department of Environment, Food and Rural Affairs as part of a department line of thinking that was intended to 'rural-proof' public policy.
That’s an interesting choice of phrase. Since it smacks of closed minded thinking on a number of levels. Worse still, following the resultant, and very public, inter-departmental spat between the energy and rural affairs government units it’s the wider interests of the general public that once again get lost in the melee.
Indeed, with each division drawing their respective lines in the sand, the end result is one of mixed messages and a lack of any consistency, above all else.
And, in an era when the need to communicate a fresh approach towards the way in which we meet future domestic energy needs reaches fever pitch, it’s a sideshow that hardly helps.
For some, questions may be raised regarding why private sector institutions haven’t already waded into the debate, while for others they’ll be quick to point to numerous reports and studies already in circulation that prove and disprove the various theories.
And let’s be clear, these reports aren’t limited to the UK either. Since a whole multitude of studies have already been undertaken in North America and in mainland Europe, to help provide further clarity and thinking.
Sure, they all help. And naturally questions around impartiality and scientific rigour will resurface again and again. That’s certain even if nothing else is.
However, what’s not so clear for the domestic consumer is the disparity between short-term property prices and the long-term impact of rising energy bills.
And, in an era when energy independence is key, isn’t that the wider message that all governmental departments and commercial entities should really be focused on?
The French and the Brits have a long tradition of sizing each other up across the Channel. But when it comes to energy policy, a comparison between the two countries is certainly instructive.
Take this month’s UK Offshore Wind Industrial Strategy, for example. Statements hinting at a possible local content element to the policy quickly drew attention from observers, including us.
The media glare prompted a swift denial from Energy Secretary Ed Davey. “No hint of favouritism here,” was the gist of his message. French politicians would never have bothered with such subtleties.
In France it seems a foregone conclusion that green energy policies are all about building a solid home market for the nation’s manufacturing giants.
French interests snapped up all of the projects handed out in the country’s first offshore round last year. The all-French line-up of Électricité de France and Alstom walked off with three out of five development zones.
Iberdrola, meanwhile, seemingly only gained a zone because the government needed to name more than one winner. The Spanish developer had slyly teamed up with France’s Areva for turbines, giving French employment prospects a boost.
A third French company in the bidding, GDF Suez, went away empty-handed after submitting a bid that was too high to accept even on job creation grounds.
Another show of blatant favouritism is likely this year with France’s second round of offshore bidding, which will once again feature GDF (this time paired with Energias de Portugal Renovaveis alongside Areva).
But perhaps the French can be indulged on this point?
After all, France’s nuclear might means it does not need to rely on offshore wind the way the UK or Germany does.
So while UK policymakers have to create the conditions to bring down the price of offshore power at whatever cost, regardless of how it affects local interests, the French can afford to indulge their job-creation instincts.
Plus the UK literally has to bring in outside expertise in order to meet its ambitious targets.
Getting worried about wind industry protectionism in France is missing the point. The UK is in onto a much bigger game, where everyone can play.
Nobody enjoys their first day at school. So spare a thought for Anders Runevad.
He’s just left his post as a regional boss of telecoms giant Ericsson, to shortly take up the role of chief executive at Vestas, following the departure of Ditlev Engel.
Ditlev was replaced late last week at the Danish manufacturing giant, following revelations that net losses increased more than seven fold, to €62m.
Vestas of course, has been quick to position the departure as part of a long-term strategic plan, with Vestas Chairman, Bert Nordberg, keen to reiterate that the decision to seek a replacement was taken some time ago.
Either way, Nordberg is looking for stability. And with the losses continuing to widen, many believe that holding his nerve with Ditlev had finally run its course.
However, to what extent the introduction of Swedish-born Runevad will help to address this, is still very much open for debate.
Sure, the pair have previously worked together at Ericsson and sure, there’s no doubt that a new leader brings with him a new culture and a fresh approach.
Nevertheless, it would be foolhardy to think that under the new guard, there’d be an end to any future surprises. Since Vestas problems run deeper than that.
According to many, those problems began back in 2008, when Engel, buoyed by an expectant market and a growing order book, undertook an ambitious expansion strategy. It was a plan that saw the firm open up a factory in the US and grab a foothold in the Chinese market.
In pure numbers terms, that meant that in the space of just twelve months, the firm’s workforce jumped from 15,305 to 23,252 and that as a result, significant working capital was tied into the success of the developments.
Then, with the financial crisis running deep, coupled with the well-publicised tax credit challenges in North America, Vestas suddenly found itself overcommitted and – following a series of profit warnings and high profile board departures – the strategy of pursuing revenue growth was abandoned.
In its place came a focus on cash flow and a fresh, single-minded vision.
An approach that shrunk back the workforce once again and that saw Engel’s leadership time and time again brought into question – a situation not helped by the increasing influence of the recently installed chief operating and finance officers.
Perhaps then it was only ever a matter of time before the final switch – the departure of Engel – was made. A switch that was only possible once the firm had been sufficiently steadied to make the transition complete.
Whatever the case, despite a share price uptick following the news, it would be naïve to think that Vestas was finally out of the woods.
And the search for a lightning rod remains. That’s why it’s imperative that new boy Runevad quickly creates steady, upward commercial predictability, while continuing to tackle an already overflowing inbox.
No easy feat and it comes with no cast iron guarantees.
However, what is undeniable is that if Runevad succeeds, the Danes will be quick to overlook the fact that he’s a Swede.
The French and the Brits have a long tradition of sizing each other up across the Channel. But when it comes to energy policy, a comparison between the two countries is certainly instructive.
Take this month’s UK Offshore Wind Industrial Strategy, for example. Statements hinting at a possible local content element to the policy quickly drew attention from observers, including us.
The media glare prompted a swift denial from Energy Secretary Ed Davey. “No hint of favouritism here,” was the gist of his message. French politicians would never have bothered with such subtleties.
In France it seems a foregone conclusion that green energy policies are all about building a solid home market for the nation’s manufacturing giants.
French interests snapped up all of the projects handed out in the country’s first offshore round last year. The all-French line-up of Électricité de France and Alstom walked off with three out of five development zones.
Iberdrola, meanwhile, seemingly only gained a zone because the government needed to name more than one winner. The Spanish developer had slyly teamed up with France’s Areva for turbines, giving French employment prospects a boost.
A third French company in the bidding, GDF Suez, went away empty-handed after submitting a bid that was too high to accept even on job creation grounds.
Another show of blatant favouritism is likely this year with France’s second round of offshore bidding, which will once again feature GDF (this time paired with Energias de Portugal Renovaveis alongside Areva).
But perhaps the French can be indulged on this point?
After all, France’s nuclear might means it does not need to rely on offshore wind the way the UK or Germany does.
So while UK policymakers have to create the conditions to bring down the price of offshore power at whatever cost, regardless of how it affects local interests, the French can afford to indulge their job-creation instincts.
Plus the UK literally has to bring in outside expertise in order to meet its ambitious targets.
Getting worried about wind industry protectionism in France is missing the point. The UK is in onto a much bigger game, where everyone can play.
This week the PR teams for two German utilities really earned their pay cheques.
Half yearly figures were out for both E.ON and RWE and the results were far from rosy.
Time then to shift the focus away from individual company performance and instead to paint a picture of the wider international energy market?
It was a smart commercial strategy from both, in part of course, because it was grounded in some real home truths.
After all, it wasn’t necessarily the figures themselves that made for the most interesting reading but more the situation that both firms find themselves in.
By way of a quick history lesson, both businesses have a strong heritage in traditional energy commodities such as gas and coal.
For decades, these have formed the backbone of European energy supplies – with demand for peak power at a premium.
However, that’s now starting to change. And the reality is that peak power demand for coal and gas is already declining at a substantial rate.
For many, that’s hard to stomach. And in the short term, it’s an expensive shift.
However, let’s remember that this has come about as a direct result of a growing body of political pressure and a subsequent move towards renewable energy technologies.
So, does a tricky situation for E.ON and RWE mean more positive news for wind?
Perhaps surprisingly; not necessarily so.
Being largely exposed in their domestic German market, where renewables are prioritised more so than in other European countries, means that a potentially structural weakness could threaten some of the utilities renewable activity on the wider international stage.
E.ON and RWE are of course investing heavily in European offshore wind. Indeed, the former has recently commissioned the world’s largest offshore wind project – London Array – and will shortly begin construction on a 288MW German offshore project, Amrumbank West.
What’s more, EON has to shut down some of its cleanest combined cycle gas plants as parts of the German grid demand that gas is only used to support peak base load periods.
And that creates a curious paradox.
For whilst fossil fuelled power producing plants are becoming harder to justify, we must remember that the utilities that profit from them, rely on these revenue-generating assets to maintain a strong balance sheet.
And the strength of that balance sheet is critical to future wind energy investment.
What it all ultimately comes back to, of course, is a need for a more closely aligned strategy for renewable energy.
The nature of the European utilities means that they cannot afford to be exposed to multiple risks from political uncertainty in different countries. Instead, they require unified international policies that smooth the transition to a new generation of cleaner, more sustainable power.
In the short term the situation will require some fancy footwork from the utilities as they readjust their existing energy portfolios without losing the confidence of their own shareholders and investors.
While in the medium to long-term it’ll require many of these major international utilities to step confidently into a new power producing era, put faith in the technology of today and continue to commit capital and re-invest.
Don’t let the facts get in the way of a good protest.
That seems to be the mantra for some of the folk who are currently parading around the UK countryside, armed with banners and occasionally, a tube of glue.
Evidently they’re keen to make some sort of point.
The thing is, for impartial industry observers, it’s often difficult to understand just what that point really is.
Worse still, with the UK tabloids climbing all over the issue and dedicating increasing column inches and air time to the matter during what is traditionally a quiet news month, there’s a danger that it’s quickly getting out of hand.
And, that in the subsequent melee, there’s a concern that the most pertinent issues of the day (and the facts), are getting lost in the chaos and the noise.
Sound like just another protest at a soon-to-be onshore wind farm?
Well, this time it’s not. Although, given that many of the protesters currently courting the attention of the world’s press would most likely do the same were the site set for wind, there’s a curious irony to it all.
No, in this instance, it’s the delicate issue of fracking that’s been courting the headlines. And it’s developer Cuadrilla, that’s borne the brunt of the storm.
Never mind the fact that this single, six-inch exploratory well that’s being drilled to 2,500 feet below Sussex doesn’t involve the actual fracking process, of course. Or that it is ever expected to either – provided that the anticipated flow is good.
And never mind too, that the very way of life of the protesters and the wider UK consumer base is dependent on long-term cheap, secure and plentiful energy, a point that Dominic Lawson argues extremely well in The Independent.
Because that’s really at the nub of the energy debate, isn’t it? A plentiful, boundless energy supply, provided at an affordable rate to the end consumer.
Now, let’s be clear, this column is not suddenly switching allegiance to our fossil fuelled cousins. Or is it supporting or endorsing any one single, limited fuel supply over another – irrespective of the estimated size of the reserves.
However, what is becoming increasingly clear is that for a small but vocal minority, there’s a growing disconnect between the lifestyles and levels of domestic comfort and security that such individuals enjoy, versus the reality of juggling the future national energy mix.
As we’ve long argued - energy is a provocative and controversial business. And with usage showing little signs of slowing, that’s unlikely to change overnight.
In the short to medium term then, that means exploring a range of emerging energy sources, it involves renewed investment and it requires confidence, patience and belief.
As the international wind energy markets know all too well, that takes time. And it involves engaging with the naysayers, tooth and nail, from the very start.
Wind energy executives teaching the oil and gas markets a thing or too? Now that really would be something to wave a placard about.
Sometimes being able to determine a sign of market maturity is simply down to the size and volume of transactions.
For the wind energy industry as a whole, the sector has seen numerous sales, acquisitions worldwide.
For the offshore industry, the burn has been slower, but reassuringly steady.
With this is mind, there were two transactions in this past week that demonstrated that overall, and despite its many detractors, the wind energy industry is starting to mature.
Terra Firma, the private equity firm run by Guy Hands announced that it is considering putting its renewable energy arm, Infinis, up for sale, whilst Japan’s Marubeni Corporation – already a co-owner of offshore wind installation firm, Seajacks, confirmed that it was buying a 25% stake in wind energy developer, Mainstream, for €100m.
Both transactions were for very different reasons.
Terra Firma’s announcement that it is to put Infinis up for sale, is largely to help the wider portfolio recoup some its losses from the firm’s acquisition and subsequent disposal of loss-making record label EMI.
The private equity firm hopes that the sale of the energy portfolio, which includes a £75m financing facility for onshore wind construction, will raise £1.5bn.
Marubeni, conversely, has made a number of aggressive acquisitions to boost its worldwide power generating capacity to 10GW. With the domestic drive to boost clean energy development in Japan in the wake of the Fukushima disaster, Marubeni is in a strong position to import the expertise it has acquired as the Japanese market develops.
The acquisition of a share of Mainstream will additionally enable the business to make good on its aims of developing projects in the emerging market – Mainstream already has interests in Chile and South Africa.
Taken together, both developments seem to offer positive reinforcement that the wind industry is an asset class that investors are willing to take a bet on.
And whilst some will shy away until they feel more comfortable, for those that take these first steps, there is very much a first mover advantage.
They say it takes more than six nautical miles to turn around a fully laden oil tanker that’s operating at full tilt, far out at sea.
That’s an awfully large turning circle. And a feat that’s requires some herculean effort.
So spare a thought for BP, who, having changed direction and altered course, now appear to be coming full circle, having broken the tiller.
Let’s rewind a little.
Back in April, following a rough twelve months and having been put through the grinder by both investors and the general public, BP raised the white flag and put its US wind energy business up for sale.
The announcement sent shock waves through the industry, as one of the largest investors and operators within the sector abruptly pulled the plug.
In an instant, that meant that the 16 operational wind farms located in nine different US states were up for grabs, together with an estimated 2GW pipeline under development and at various stages of planning and consent.
And since BP had established a pretty impressive reputation for unstinting quality and on site operational excellence, from the outset there was never any doubt about the performance and power potential of the parks.
However, four months on – and following some pretty bold statements from senior management that effectively signalled a renewable retreat - it’s all change. Again.
Last week the company issued a statement effectively confirming that it hadn’t received any offers that it was prepared to accept and that it was taking the wind energy portfolio back off the market.
According to the business, offers were received but they simply weren’t competitive enough – suggesting that there was a mismatch between what the firm thought the portfolio was worth, versus what others were prepared to pay.
That’s a dilemma that’s familiar to many would-be property developers and homeowners the world over, albeit on a far smaller scale.
And curiously enough, the lessons remain broadly the same.
For, while valuations and best estimates always serve as a guide, until cash is exchanged for goods, the figure is only ever that. A guide. A best estimate. Or put another way - just one side of the negotiating table’s opinion and view.
Now all this is to say that best estimates don’t always have to be marked down, Since valuations and figures are just as likely to rise as well as fall.
That’s something that the historic automotive market has been reminded of recently, following the $29.65m price paid for Fangio’s F1 race-winning Mercedes – a record feat that makes it the most expensive car ever sold at auction.
Small consolation to BP of course, particularly when it’s found itself in such a bind. And is seemingly looking for a quick buck.
Nevertheless, there’s a lesson here – and it key to it is timing. BP currently operates a profitable and well-maintained revenue-generating asset.
No one is really in any doubt about BP’s long-term desire to sell. However, to command a premium price it needs to switch gears and re-shuffle the pack.