The project, located 8 kilometres off England's east coast in Lincolnshire and comprising 75 Siemens 3.6MW turbines once completed, secured £425 million (EUR531 million) in long-term debt facilities from a group of ten commercial banks.
It is a landmark deal for the UK. Despite being the world's largest offshore wind market in terms of installed capacity, the UK has lagged behind other European countries when it comes to using non-recourse bank debt to finance offshore wind from scratch. Until now, the construction of all offshore wind projects in the UK has been financed by utilities on balance sheet.
However, the Lincs deal has suffered several setbacks since preliminary bank negotiations began in 2009. The process has been so drawn out that some in the market are sceptical about the deal paving the way for future financings.
"I'm not sure what kind of a precedent it will be," said Jerome Guillet, managing director at financial advisory firm Green Giraffe Energy Bankers, which specialises in offshore wind. "The financing has closed three years after negotiations began and (nearly two years) after construction started and it has been an experience that everybody involved has hated."
Lincs' owners officially launched the project on the finance market in August 2010, looking for £950 million in debt - more than 80% of the project's entire capital costs. They approached the European Investment Bank (EIB) for £350 million and 20 commercial banks for £600 million in loans lasting 17 years.
Unable to secure these levels of debt on favourable terms, the deal was relaunched just over a year later, with the owners increasing their equity commitments and agreeing to provide company loans to the project.
At the time, each firm's commitment in loans and equity to the project - £575 million in total - was reported as follows: Centrica £333.3 million (50% equity holder); Dong £166.7 million (25%); Siemens £75 million (25%). Meanwhile the partners changed the level and structure of debt they were seeking, asking for £550 million in long-term debt and a short-term £250 million construction bridge loan.
The final deal announced in June falls short of even these revised goals. The construction bridge loan has failed to materialise, while the total debt secured from banks amounts to just £425 million, loaned over a period of 15 years, two years less than the term originally sought.
Guillet said the project's difficulty in securing a financing package comes from utilities' instinctive dislike of the levels of controls sought by banks on offshore-wind project-finance deals.
"Banks want to do extensive due diligence on everything, be involved in contract negotiations and the monitoring of construction," he said. "These are all the sorts of things that utilities don't like and can avoid when doing project finance in other sectors. However, offshore wind is still immature and banks want more control over the process."
Richard Simon-Lewis, a senior director in the renewable-energy project finance team at Lloyd's Bank - one of the ten banks lending to Lincs - said that despite its early problems, the deal was still significant as the first offshore wind financing with construction risk. "Any deal that comes along and establishes precedent has to be something that is viewed positively," he said. "Banks are creatures of habit and rely on precedents."
Guillet agreed that there was no reason why project finance should not work for offshore wind in the UK as it has elsewhere in Europe - but such deals are more likely to be made with independent developers, unless utilities learn to accept the banks' approach to risk.