Project finance: Pension funds predict profit in Dong project

Dong Energy has signed a DKK6 billion (EUR804 million) deal with two pension funds for a 50% share of the upcoming 400MW Anholt offshore project.

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This is the biggest deal of its kind and signals a growing trend for capital-rich pension funds investing in offshore wind.

The two funds are PensionDanmark and PKA, which are acquiring 30% and 20% shares respectively. The money will be paid in instalments through to the end of 2013.

It has been rare for pension funds to invest in wind projects - usually because of the length of time they have to wait in order to receive a return on their investment.

However, this is now beginning to change. PensionDanmark made a similar investment in Dong's 165MW Nysted offshore project last year.

Dong has a deal to complete the Anholt project by April 1, 2014, although it is set to begin producing electricity in mid-2013.

On April 1, 2014, responsibility for 50% of the project's operation costs and revenue will be handed to the two pension funds. The funds will receive a return on investment fairly quickly as there is no debt involved in the project financing.

Speaking about the deal, Dong CEO Anders Eldrup said it was part of the company's strategy to sell off parts of its developments in order to secure more funding for new projects. He said: "We would rather have two wind farms where we own 50% rather than one where we own 100%."

Eldrup said Dong would not go beyond the 50% point in order to "keep control of the park".

An element of risk falls on the pension funds. If there is a serious failure of the project or its 120 SWT 3.6 turbines after April 1, 2014, the two pension funds will pick up 50% of the repair bill.

Speaking about the growth of the offshore sector, Eldrup said the emergence of Germany and France as big offshore players, alongside the UK, had provided a "challenging time and an interesting time to help service this".

Eldrup believes the current race to develop new offshore products is good for business. The company has signed a deal with Siemens to test its 6MW turbine at the English Gunfleet Sands project.

"A couple of years back there was only one supplier. Now we have increasing competition and that is very good. Being the buyer we're interested in competition. Turbines are getting bigger and direct drive is on its way. We should be able to increase the efficiency of offshore wind."


Dong Energy's UK offshore business is now so big that the company has set up a separate operations and maintenance (O&M) centre in London. Another O&M centre will cover the rest of northern Europe. Peter Gedbjerg, Dong Energy's VP, UK Power, said: "We have already invested £2.5 billion (EUR2.84 billion) in offshore wind in the UK - this is the right time to set up a dedicated team so that we can continue to grow our renewables business here." He added that Dong's offshore wind business would now be the company's main strategic emphasis as it moved away from coal generation, and the UK could soon be a bigger part of its operations than its native Denmark, despite the company missing out on many of the Round-3 offshore projects. He added that the nascent French offshore market was also of interest to Dong.

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