Ocean Winds, a partnership between EDP Renewables and ENGIE, and Ignitis Group have secured the debt from a consortium of 18 banks including BNP Paribas, Societe Generale, and Credit Agricole. The financing comprises a term loan and a debt service reserve facility, both for a period of 18 years. The funds are believed to be priced at 150-160 basis points over a reference rate, however, specifics were not provided.
The asset is located off the coast of north-eastern Scotland and has already secured corporate PPAs with tech giants such as Google and Amazon for ~52% of its power output. A portion of the power is also committed under the UK’s Contracts for Difference (CfD) Allocation Round 4 at a strike price of $44.5/MWh. The project is expected to reach full-scale operation by 2025. The wind farm is the first UK offshore wind farm to rely in majority on corporate power purchase agreements (CPPAs) for the commercialization of its output.
The current transaction underscores the shift in traditional financing trends for offshore wind projects, with lenders increasingly willing to fund assets with a lower share of revenue backed by stable power contracts, such as CfDs. The shift is driven by developers’ ability to build a “revenue stack” to make up for the missing CfDs and capture the upside of the current high power prices. A prime example of this shift is a comparison in lender appetite for the 1.1 GW Seagreen project - being developed by TotalEnergies and SSE - and the Moray West wind farm. As per Enerdatics’ research, lenders were hesitant to back the Seagreen project in 2020 as it sold only 42% of its output under a CfD, while the remaining was sold through corporate PPAs and in the merchant market. Fast-forward to 2022, the Morway West project - with a revenue stack very similar to the Seagreen asset - has successfully raised long-term, non-recourse debt for 18 lenders.
Moving forward, Enerdatics expects more developers to emulate the Moray West model, as the government has announced further reductions in incentives for offshore wind in the upcoming CfD Round 5. The round is currently ongoing, with results expected to be announced during the summer of 2023. Under the round, offshore wind will be considered an established technology for the first time and will have to compete alongside solar and onshore wind in the same ~$250mn auction pot. This is a significant reduction when compared to the ~$256mn pot that was allocated solely to offshore wind projects during the previous round. Further, the administrative strike price, which is the maximum price per MWh that the government is willing to offer the shortlisted renewable energy projects, has been reduced in the latest auction by $2.4/MWh to $54.4/MWh, for offshore wind farms.
The above analysis is proprietary to Enerdatics’ energy analytics team, based on the current understanding of the available data. The information is subject to change and should not be taken to constitute professional advice or a recommendation.
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