Europe Offshore: Company Profile - Taking a gamble and making sure it pays

Germany's offshore wind market may have been stuck in neutral gear for some time, with early amibition being thwarted by complex bureacracy, but for one local firm its been full speed ahead all the way and its project pipeline now spans seven European countries.

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Germany's offshore wind ambitions have often seemed a doubtful venture. As other countries have sailed past it with projects coming into operation, it has tread water with just a couple of nearshore machines online. Projects can only be developed tens of kilometres out to sea in deep waters to avoid nature protection areas and getting them permitted has been long and complex. So when Bremen-based wind developer WPD set up an offshore division in 2000, just four years after the company was founded, it was a gamble. "We were keen to internationalise and diversify the WPD portfolio," says Dr Gernot Blanke, founder and stakeholder in the company.

The gamble has paid off. Under the direction of managing director Achim Berge, originally a lawyer who took the helm in 2001, WPD Offshore now employs 60 people and has a substantial and internationally diversified portfolio of over 11 GW of promising projects in development, spanning Denmark, Finland, France, Germany, Italy, Sweden and the UK, where it is hoping to secure building concessions under the country's third round of offshore development, teaming up with American turbine manufacturer Clipper Windpower to bid for more than 1 GW of capacity (table 1).

In addition, it has sold six projects totalling around 2.5 GW (table 2). Four of them, all in German waters and with an investment value of around EUR3 billion, were sold to German energy firm EnBW. These total 1.4 GW. The other two projects - Krieger's Flak 2 (640 MW) in the Swedish Baltic Sea and Kriegers Flak 3 (455 MW) in the Danish Baltic Sea - were sold to Vattenfall, a Swedish state-owned utility giant. These have an investment price tag of around EUR2 billion. WPD Offshore is, it says, proud to have contributed to work leading to a proposal for European funds of EUR150 million towards the extra costs of a joint cable interconnection of the Krieger's Flak 1, 2 and 3 projects to Denmark, Sweden, and Germany (page 10). It believes the chances of success for the projects will be much improved when and if the European Commission takes the final decision to grant the funding.

Of the sold projects, four are close to fruition. Baltic 1, bought by EnBW, will be fully operational by autumn 2010. Construction is due to start on Vattenfall's Kriegers Flak 2 in 2011. And Hochsee Windpark Nordsee and He Dreiht, two of the other EnBW acquisitions, are firmly slated for commissioning before the end of 2015. The two Finnish offshore projects WPD is developing may also be completed in 2013 and 2015.

The market framework for offshore developments in Germany and the UK are the most favourable in Europe at present, says Blanke. Its home market, Germany, just has the edge because of its guaranteed electricity rates for wind, paid over a 20-year period, as set out in the country's renewable energy act, he adds. "This adds sustainability, gives security and helps in project financing." In other countries arrangements have yet to be created for "an appropriate payment for the electricity" and for carrying the cost of cable connections to shore, he says.

A case in point is Sweden, where WPD's planned 230-260 MW Storgrundet and the 1.3-1.4 GW Finngrunden development are in the middle of the permitting process. Concrete decisions on Sweden's future offshore market support mechanisms are likely to be announced this month, at the European offshore wind conference in Stockholm. "After that we will decide with which investor to take the next steps," says Berge. In Finland, meanwhile, WPD Offshore has been the first mover in the country and is optimistic that its proposed Suurhiekka (400-600 MW) and Korsnas (600-800 MW) projects will come online in 2013 and 2015.

France is another potentially big market for WPD, with its 250 MW Calvados project being the furthest advanced. A boost will come, the company says, when France completes its zoning process, creating special areas for offshore wind development, expected in 2010. In Italy, WPD is working with a local partner and is in the middle of the permitting process for its two projects in Gargano (one 680 MW, the other 855 MW). "No one has yet completed the permitting process for an Italian offshore wind station so it's hard to say precisely how long the permitting process will take," says Blanke. "The environmental impact assessment will take at least a year, and grant of a concession in connection with a construction permit another year, so at least two years is the most favourable timescale."

Overall, the company believes its current offshore project pipeline could be built within the next eight to ten years - fears that a lack of suitable turbines could slow implementation are unfounded, says Berge. Assuming the markets develop as forecast and that turbine manufacturers can get attractive prices for their products, turbine suppliers will swiftly expand their production capacity, he says. Siemens has already increased the share of offshore turbines in its overall production and other manufacturers are entering the market with serial production of 5 MW and 6 MW machines alongside the 3-3.6 MW class of units currently offered, he observes.

The next generation of 7.5-10 MW turbines will start to come on the market from 2015. To bid in the Offshore Round 3 tender for concessions initiated by the Crown Estate, The UK's seabed owner, in September 2008, WPD Offshore teamed up with US manufacturer Clipper, intending to use its 10 MW machine. Production of the turbine is planned for the UK creating jobs in the local market. Details on the progress on the Round 3 bidding process cannot be revealed, WPD says, because UK regulations forbid it until The Crown Estate announces its decisions.

Operational diversity

To spread its risk and maximise opportunities in the offshore sector, the company is not relying solely on being a developer. Instead it is building up several areas of activity. One part of the offshore business will focus on planning and initial project development. Another will be involved in overseeing the tendering processes for offshore plant and taking on their construction management and financing, while a further part of the business will be to focus on offshore wind farm operational management.

Subsidiary WPD Offshore Services will focus on the project tender side, securing supply of turbine foundations, the turbines themselves, their installation, the transformer station and cable connections between the turbines and the transformer station. Led by Martin Lehnhoff, the division is also building up a team for the next phase of projects, construction management. Initial experience is being gained with the four offshore projects sold to EnBW. Further contracts and projects are expected to follow. Until autumn 2008, Lehnhoff was managing director of offshore turbine manufacturer Areva Multibrid and closely involved in development of that company's offshore Multibrid 5 MW turbine. He joined WPD offshore services as managing director in August 2009.

Arranging finance for offshore projects is a business area the company is keen to grow. Building on its parent's expertise from developing and arranging finance for 1.5 GW of onshore capacity, WPD Offshore managed to secure six financing offers from various banks to finance the Baltic 1 offshore project - in the end, however, EnBW decided to pay for the project from its balance sheet rather than use project financing.

Meanwhile, the fourth area of offshore activity for WPD will be to secure long-term minority stakes in the stations it develops at sea as a means to ensure a steady flow of earnings from sale of electricity. This mirrors the strategy in its onshore business where it now owns 400 MW of capacity and strives to remain the sole investor. In the offshore segment, where investment costs are higher and amount to EUR3-3.2 million a megawatt, varying according to factors such as distance to shore and depth, the equity position is significantly larger than it would be for onshore plant, so WPD is content to take minority stakes alongside the main investors in each project.

The list of possible buyers for its projects is long. It includes German majors E.on, RWE, EnBW and Vattenfall Europe, as well as groupings of municipal energy companies such as Trianel and 8KU. International energy companies concentrating on building up a renewables portfolio, like Spanish firms Iberdrola and Acciona and Denmark's Dong Energy, are also on the radar. "Energy companies will only invest if a reasonable return on equity can be earned," points out Blanke. "This is the case. Therefore we will also see financial investors interested in long-term and stable cash flows, such as infrastructure funds, pension funds and insurance companies becoming owners."

Few of these potential investors will have or wish to develop their own facilities to implement offshore wind stations. So WPD is an attractive partner because it offers project planning, tendering, financing and construction in addition to commercial and technical operation on a long-term basis where required, he says.

WPD's confidence seems unlimited, but it does recognise that, in the wake of the global financial crisis, there has been a seachange in the world of project finance that has impacted the wind industry. The loan syndication market has collapsed and banks will no longer underwrite large sums of the order of EUR200 million per bank. This means that where project financing for large wind projects is needed, it can now really only be implemented through so-called Club Deal structures with the involvement of the European Investment Bank (EIB). The first example of the EIB's involvement in offshore wind financing is for the 165 MW Belwind offshore project (Windpower Monthly, September 2009). This is the largest offshore wind station to be financed on a non-recourse basis and the first such transaction to be closed since the financial crisis started, says the EIB and the five other institutions involved.

Still, even then, WPD sees an upside to the financial crisis. "The quality of projects and project partners has become even more important. Banks seek experienced projects and sponsors. These are processes that WPD sees as positive rather than negative," stresses Blanke.

WPD's plans
Country GW planned
Denmark 0.455
Finland 1.000
France 2.560
Germany 2.240
Italy 1.535
Sweden 2.235
UK >1.000
Total 11.025

Offshore projects developed and sold on by WPD
Bought by EnBW
Project Country Planned GW
Hochsee Windpark Germany (North Sea) 0.400
He Dreiht Germany (North Sea) 0.595
Baltic 1 Germany (Baltic Sea) 0.076
Kriegers Flak 1 Germany (Baltic Sea) 0.329
Bought by Vattenfall
Kriegers Flak 11 Sweden (Baltic Sea) 0.640
Kriegers Flak 111 Denmark (Baltic Sea) 0.455
Total 2.495

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