Thousands rush to buy high risk stakes

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Investments in wind funds in Germany enjoy a gilt edged reputation thanks to the fixed payments for output from wind plant which are guaranteed by law. Offshore wind farm development companies are having no trouble attracting private capital to finance pre-construction work on new projects, despite the high risks involved

Three German wind plant developers are successfully raising private capital to cover the pre-construction development costs of a series of offshore wind farms, both at home and abroad. There are no guarantees that any of the projects will be built, but investors are flocking to secure stakes in the new offshore "wind funds." A legal obligation on electricity companies to buy all wind power at a fixed price in Germany, together with tax advantages, lie behind the eagerness of investors to get a slice of the action.

The wind fund structure has become a traditional mechanism in Germany for raising capital for projects on land of just two or three turbines right up to multi-megawatt developments (Windpower Monthly, September 2001). With the returns on investments guaranteed by government for the 20 year life of most projects, wind funds have reached gilt edged status, with citizens even using them for pension savings.

Now the concept is being used to launch offshore wind farm projects of hundreds of megawatts, even though there is the big risk that not all projects will receive a construction licence. If a project is not built it earns no money and there is little chance of recouping the initial investment, or seeing a return. As long as the offshore wind plants produce power, however, all early wind fund investors are guaranteed a fixed share of the profits from power sales for years to come.

The biggest

By far the largest offshore fund, Blue Sea Offshore Windpark Entwicklung, has been launched by established wind plant developer Umweltkontor. It is looking to raise EUR 30 million for the pre-construction costs of up to five offshore wind farms, not all of them in Germany. Early development work is proceeding on the first two -- a 160 turbine project at Adlergrund in the Baltic Sea (800 MW if it utilises 5 MW turbines), and the Cabo de Trafalgar project off the north coast of Spain -- to use 80 Nordex 2.5 MW units or 70 of Enron's promised 3.6 MW model. It is slated for construction in 2004. Blue Sea will seek other offshore projects of at least 40 MW for further investment.

"As risk is involved we seek investors among rich individuals," says Umweltkontor's Andreas Köster. Investments in Blue Sea are protected by a risk reduction package, he adds. If the EUR 30 million target is not met, Umweltkontor will raise money to make up the difference. Furthermore, investors can bail out of the fund up until 2005 without huge losses by selling their stake back to Umweltkontor for 25% of its value. Assuming tax write-offs of up to 50% of the investment during the first one or two years, only 25-30% or the original sum is lost, says Köster. The minimum acceptable investment in Blue Sea is EUR 15,000, but it is not the intention to attract large companies. On the contrary, fund rules prevent an outside entity assuming a dominant role, says Köster.

The most ambitious

Of the three companies, Project Ökoinvest of Oldenburg has by far the most ambitious plan -- a 2600 MW wind plant of 550 turbines covering 700 square kilometres in the North Sea to be built in four stages, 120 kilometres from the German island of Sylt. To raise EUR 5 million to finance the pre-construction development costs of stage one of Sandbank 24, Project Ökoinvest has launched Venture Capital Fund 1.

It is the only company to label its wind fund as high risk venture capital that could easily be lost. "Investors must realise that all the figures are based only on forecasts," says Ökoinvest's Ubbo de Witt. "It's risk capital in the truest sense of the word."

The minimum acceptable investment is just EUR 5000, but big name companies are showing an interest, says De Witt. "We have had responses from several energy utilities and other large companies in neighbouring European countries," he says. Even if they took large stakes, Ökoinvest will keep control. Among those showing interest is a Dutch contractor, Mammout, constructing foundations for the world's first major wind plant in truly offshore waters, the Horns Rev 160 MW plant in the North Sea off the coast of Denmark, due on-line this summer.

The most unusual

Big time investment is not being sought for the Offshore-Bürger-Windpark Butendiek, which as its name suggests is to be a citizens wind park. "We have rejected lucrative offers from several large companies and from individuals to buy the complete project because we want wealth creation from the project to benefit people in the region," stresses Hans Feddersen of Butendiek, based in Husum on the northwest German coast. It is developing a EUR 400 million, 240 MW project of 80, 3 MW turbines for a site 30 kilometres west of Sylt, 50 kilometres south of Horns Rev.

With annual output projected at 800 million kWh from 2006, Butendiek says it will produce offshore wind power for EUR 0.5/kWh. This is "economically good value," says the company. The fixed price utilities are required to pay for wind power Germany, on a downward sliding scale, currently starts at about EUR 0.087/kWh.

With the lure of this profit, Butendiek had hoped to attract around 20,000 local people to each stump up EUR 250 to meet its target for the pre-construction wind fund of EUR 5 million. For this reason the maximum number of shares was limited to 100 per investor. One hundred shares proved to be the most popular option, however, and by last month the target sum had almost been met, but by no more than around 5000 people. Almost all of these are local, however. A few stakes have been sold to investors as far afield as Norway, the Czech Republic and New Zealand, reports Feddersen. And because of the project's proximity to Denmark, the company has also advertised its wind fund to Danish citizens, though without any takers. The Butendiek pre-construction wind fund also differs in that it promises no profits for investors. Instead, they secure a preferential option to raise their investment by 20 times to buy into Projektphase 2 and eventually share profits from sales of electricity as an owner of the wind plant. The initial investment carries a high risk tag, particularly as the site of the planned wind farm is within an area earmarked for EU protection as a bird sanctuary. If the project is never built, investors will probably lose their money.

Feddersen stresses that the nine initiators of the fund, which include Hermann Alvers, the vice president of Bundesverband Windenergie, the German wind association, have each sunk EUR 25,000 into the fund. It is in their interests to see it proceed, or to find another wind fund for investing the money raised, he says.

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