Exploring insights from Financing Wind 2023. Hydrogen production, as a commercial industry, is still nascent. However, interest in financing is ramping up in line with EU, UK and US subsidy processes.
Floating wind a sleeping giant
Industry observers say that the UK, France and South Korea are set to be top floating wind markets, suggesting that South Korea and the UK seem to be moving a bit faster.
Generally, floating discussions are being driven by energy security debates. Several Mediterranean counties, the US West Coast and Asian countries like Taiwan and Japan, are seen as “hotspots.” Mediterranean countries are keen to develop floating because of the incompatibility of their terrain with fixed-bottom projects. Floating wind developers are also eyeing opportunities on the back of floating wind goals announced by Greece, Bulgaria, Romania and Malta.
Floating wind development costs are high and the finance sector is focussed on getting the LCOE down, but the banks are moving cautiously so that projects are not developed with squeezed profit margins. Some banks feel very positive about supporting sponsor clients and spending a lot of time with them going over the credit, insurance and construction details and risks.
To finance floating projects, oil and gas companies and large utilities have been calling on only equity so far. As for the prospect of floating wind projects gaining debt finance, lenders suggest floating wind finance is available at a premium compared to fixed-bottom finance because it involves greater risks.
Nonetheless, there has been a lot of competition among the banks to get into position on pre-commercial small-debt projects, so pricing for these has been low, lenders say. Low-level pricing is not expected to be in place for a fully commercial project, however. In particular, low-priced debt is not expected to be available before operational data and de-risking of export cables wraps up.
Some industry observers want non-recourse debt finance structures and terms to be publicised to help the floating industry develop and allow lowering of the levelised costs. Investors note that while floating costs are currently high, track records set in reducing fixed-bottom O&M costs are promising.
Lenders say they are still looking for a clear winner for investments among various emerging floating technologies. Some lenders have seen 50 to 60 different design concepts for floating wind turbines, but data on these turbines is not particularly easy to come by. Floating wind developers say that Chinese turbine manufacturers are already covering areas where European manufacturers struggle, such as floating demonstration units. Profitable investments in the European supply chain should be made for several different floating technologies, one observer opined.
But while banks are fielding questions from clients on the use of Chinese-made floating wind turbines, there remain gaps in understanding on reliability that prevent financing. Banks have, however, seen Chinese contractors selected for fixed-bottom offshore projects. It is foreseeable that Chinese floating wind manufacturers will be chosen by buyers when no other manufacturers are available.