Creating Certainty for Investment

Is political and regulatory uncertainty the biggest deterrent for wind energy investors at the present moment?

Not necessarily. It depends on whether the investment is in offshore wind or onshore wind. The regulatory environment for onshore wind is reasonably certain at the moment. In the UK market, the main obstacle for early stage investors, i.e. those funding the development expenditure (of which there are not many), is obtaining planning consent. It is difficult to get consent in many parts of England and Wales. Most in the sector recognise that Scotland presents the best opportunities for new onshore wind development. In other parts of the world, the challenge is grid connection.

Many investors however focus on investment post consent in which event, in the case of onshore wind, the main challenges are securing debt for the right term and at the right price and, in connection with this, a bankable PPA. Whilst the PPA market is slightly more liquid at the moment than it has been, it still presents a challenge as does the lack of appropriate debt in the market impacted by recent financial regulation and the introduction of Basel III .

If the investment is in offshore, regulatory uncertainty is more of an issue for those projects which will fall within the CfD regime rather than the ROC regime. Clarification on the strike price and terms of the CfD which are expected shortly will help. But of course there are other perceived risks with offshore principally around the construction piece. It is probably fair to say that in the short term much of the investment will involve a recycling of capital in operating assets.

This is where we are seeing the institutional investor involvement. I think in the short term it will be difficult for them to take construction risk. This is not peculiar to renewable energy. It reflects their investment approach across infrastructure. I do not think that there is a magic button that can be pressed to produce a more immediate response from the institutional investor community. Their engagement with the wind sector will come with time as the asset class matures, the market develops structures which are more appropriate to their needs and the investors move up the learning curve and feel more confident about their approach. Without doubt, the involvement of development banks including the UK’s GIB are helping to establish a degree of confidence and deal flow which are helping with this.

Michelle T Davies is global head of clean energy at Eversheds. She and her team advise across all renewable technologies across the entire project lifecycle including debt and equity finance.