The Energy Finance team (Leon Pulles, Johan Schoone) of Royal HaskoningDHV has executed research to reduce one of the offshore wind cost sources – the financing costs.
The financing costs are defined as those costs arising from attracting debt and/or equity in order to finance the wind farm. The largest part of these costs arise from interest expenses, but one may also think of transaction costs and dividend payments within this cost source.
The core of the research includes an interview round among a diverse group of financiers – among which banks, pension funds and corporate investors – to get a practical view on cost optimisation regarding financing costs.
The most important conclusion of the research entails that (offshore) wind farms should start and complete their financing now, at this point in time.
Nevertheless a whole range of risk diminishing measures exist, the current state of the financial market is key in the determination of the interest rate, according to the financiers. And thus is the state of the market key in the determination of the financing costs. The current, historically low interest rate of the European Central Bank (ECB) therefore provides an enormous advantage to wind farm developers to start their project now.
Within the risk reducing measures there also seems to be a broad consensus among financiers. Experienced constructors, experienced suppliers as well as experienced co-investors induce a lower risk profile and thus a lower interest rate and dividend requirement. Logically, the wind farm’s location is also very important for all financiers, as well as the data reliability of this particular location. On top, the government has a substantial role within the opportunities to reduce costs, since a solid and trustworthy policy will take away many uncertainties among both revenues as costs.
A last note to be made is the positive vibe among banks regarding the introduction of a soft mini perm within the financing of offshore wind. A financing construction as such stimulate refinancing by the implementation of a (full) cash sweep after a certain period of time.
Image: ens (Illustration)