Financial innovation and new entrants to help reduce cost of offshore wind

A report by the FTI-CL Energy practice, a combination of energy experts from FTI Consulting and Compass Lexecon have compiled a report, which forecasts good news for the offshore wind sector.

At the recent EWEA conference in Barcelona, wind industry delegates saw the reduction of costs as being top priority if it is to increase its share of global power generation. This report, entitled, Innovative Financing of Offshore Wind, finds that there are now two main drivers achieving just that.
Offshore wind
Athanasia Arapogianni, Consultant and member of the Company’s FTI-CL Energy practice, told Business Green, “Innovative financing and an increase in the number of players in offshore wind finance are creating more competition among lenders, which will lead to lower charges, fees and risk premiums on interest rates.”

The report, Innovative Financing of Offshore Wind, focuses on renewable energy and explores the significant potential for cutting the cost of energy from offshore wind power by reducing financial fees and interest charges, which represent an astonishing 28 per cent of project life cycle expenditures.

A cost-of-equity sensitivity analysis by the practice demonstrates how small changes in financing variables have a major impact on offshore wind energy costs to the consumer.

"Offshore wind energy economics are strongly governed by life cycle financial costs, and the potential to reduce these is considerable,” explained Aris Karcanias, Managing Director at FTI Consulting and Leader of the Company’s FTI-CL Energy practice in Europe, the Middle East and Africa.

“Although financial costs normally are not expressed in terms of their share of overall capital expenditures, identification of the size of the opportunity to reduce capital expenditures shows the importance of financial innovation in providing cheaper electricity from offshore wind.”

The report also found that the entry of new investors and lenders to the renewable energy sector with innovative ideas for structuring both equity and debt is applying beneficial pressure to financial margins. “Respectable returns without exposure to risk” was a strong message from European wind industry and financial sector chief executive officers interviewed for this report.

The report further discovers that offshore wind now rates as an infrastructure asset favourably comparable with airports and highways, qualifying it as a safe harbour for investment and unlocking money markets previously closed to the sector.

In addition to the influx of capital for offshore wind investments, utilities and other equity investors are exercising exit divestment strategies and are selling their interests in completed projects to release capital back into more offshore wind construction.

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