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Germany targets €20bn investment in offshore wind capacity

British investment firm Laidlaw Capital bought its second German offshore wind park project two weeks ago, following a similar landmark acquisition by Canadian energy group Northland Power.

Chancellor Angela Merkel’s government has made offshore wind a priority in the country’s “Energiewende”, which moves Germany towards alternative energy sources after a decision to phase out nuclear power by 2022.

Germany needs at least €20bn to achieve its aim of expanding offshore wind capacity to more than 10 times its present capacity by 2020. Attracting new investors is crucial to help power producers to shoulder the cost.

As part of the country’s new renewable law, investors can now look forward to guaranteed feed-in tariffs of 19.4 cents per kilowatt hour (kWh) over a period of eight years for offshore, better returns than for solar and onshore wind power.

“We’ve got relatively clear conditions for projects until 2020. Many will use this opportunity,” said Holger Kraft, partner at law firm CMS Hasche Sigle, which advises investors including Laidlaw on offshore wind park transactions.

“The appetite has picked up markedly,” he added.

Unlike onshore wind farms, where risks can be quantified after decades of use, offshore wind is a relatively new sector and there is a lack of evidence to judge the long-term impact from storms.

Standing as tall as 200 metres, offshore wind turbines are built to withstand stronger winds at sea, making them bigger, more robust and more efficient than their onshore rivals.

However, risks include the construction process at sea, with potential delays as offshore turbines are usually erected during the summer months when waters are relatively calm.

In addition, outages caused by low winds as well as broken components such as rotor blades can result in hundred of millions of euros of losses, depending on the size of the park.

Those uncertainties are enough to deter some investors.

“What’s the crisis management in case of damage?” said Armin Sandhoevel, chief investment officer for infrastructure equity at Allianz Global Investors.

“What happens if there is an accident at an offshore wind park? Too many of those questions are still unanswered.”

Most upfront financing for offshore wind parks usually comes from power producers, but the high price tag of about a billion euros per park as well as tight budget restraints in the crisis-ridden utility sector mean outside money is crucial.

In the end, falling costs and a stable regulatory environment could be the decisive factors driving players to enter the sector. (Reuters)

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