Green bank £1bn fund not immune from offshore attrition

Spending money can be hard work. It takes time and effort.

It's even tougher when you set the parameters that the cash has do two things – back ‘green projects’ and maintain strong, commercial terms.

That is the situation facing the UK’s government-backed Green Investment Bank, which this week revealed its first set of full-year results. It has made a strong start and the results paint a pretty picture of what amounts to a busy 18 months.

So far, the bank has invested £1.3bn in 26 projects and leveraged £3.5bn of private investment. Half of this is in offshore wind, with deals at projects including Westermost Rough, Gwynt y Mor and London Array. This also bolsters the status of the UK as an offshore wind development hub. And, given the increasingly global ambitions of this area of the market, that is good news.

But arguably the most exciting announcement was the bank's plan for a £1bn offshore wind fund, where it is aiming to raise money from long-term investors to buy equity stakes in operational projects.

On paper, the fund has the makings of another cunning plan. Shaun Kingsbury, the bank’s chief executive, confirmed that the thinking is to crowd in additional capital. That’s similar to how the bank operates when making direct investments.

Under this approach, the bank can pool investments at the beginning of the process and then take control of the capital deployment – something that Kingsbury now feels his team has the track record and credibility to do.

Certainly the bank has built its reputation over the last 18 months, and the UK offshore wind sector has established itself as a world leader. Therefore it follows that we expect the £1bn fund to attract interest from institutions including pension funds who want exposure to a growth market.

There are plenty of reasons why they would want to. UK offshore is not beset by the same political uncertainty as the onshore sector.

And don’t forget, there’s already an interest that’s been expressed by investors. Masdar Energy injected capital into London Array and Marubeni Corporation took a stake in Gwynt y Môr. Meanwhile the likes of Balfour Beatty, Macquarie Capital and Mitsubishi have invested in offshore transmission.

Investors should also like the idea of investing in wind farms that are already generating power – and by proxy, revenue.

However, at the same time, the sector is experiencing growing pains. Projects are getting further out to sea, which increases building risks and costs, and consenting bodies are cautious – partly because they are seeing their budgets slashed. As such, one issue for this fund is whether there will be enough schemes to invest in.

Let’s not forget that we have recently seen a planned extension of London Array axed because of birds; the planned 1.8GW Argyll Array scrapped because of basking sharks; and RWE handed back the rights to the 1.2GW Atlantic Array.

These all show that we must ask very serious questions about the state of the market when we look beyond 2020.

A lack of new developments entering the pipeline would mean a limited pool of new projects for the fund to invest in. And that would make it tough to attract risk-averse institutions that want to spread their risk and see future fund growth.

There’s no denying that the GIB has a track record of delivery. Irrespective, long-term, the health of this fund relies on the health of the sector.

Spending money can be hard work. It takes time and effort.

It's even tougher when you set the parameters that the cash has do two things – back ‘green projects’ and maintain strong, commercial terms.

That is the situation facing the UK’s government-backed Green Investment Bank, which this week revealed its first set of full-year results. It has made a strong start and the results paint a pretty picture of what amounts to a busy 18 months.

So far, the bank has invested £1.3bn in 26 projects and leveraged £3.5bn of private investment. Half of this is in offshore wind, with deals at projects including Westermost Rough, Gwynt y Mor and London Array. This also bolsters the status of the UK as an offshore wind development hub. And, given the increasingly global ambitions of this area of the market, that is good news.

But arguably the most exciting announcement was the bank's plan for a £1bn offshore wind fund, where it is aiming to raise money from long-term investors to buy equity stakes in operational projects.

On paper, the fund has the makings of another cunning plan. Shaun Kingsbury, the bank’s chief executive, confirmed that the thinking is to crowd in additional capital. That’s similar to how the bank operates when making direct investments.

Under this approach, the bank can pool investments at the beginning of the process and then take control of the capital deployment – something that Kingsbury now feels his team has the track record and credibility to do.

Certainly the bank has built its reputation over the last 18 months, and the UK offshore wind sector has established itself as a world leader. Therefore it follows that we expect the £1bn fund to attract interest from institutions including pension funds who want exposure to a growth market.

There are plenty of reasons why they would want to. UK offshore is not beset by the same political uncertainty as the onshore sector.

And don’t forget, there’s already an interest that’s been expressed by investors. Masdar Energy injected capital into London Array and Marubeni Corporation took a stake in Gwynt y Môr. Meanwhile the likes of Balfour Beatty, Macquarie Capital and Mitsubishi have invested in offshore transmission.

Investors should also like the idea of investing in wind farms that are already generating power – and by proxy, revenue.

However, at the same time, the sector is experiencing growing pains. Projects are getting further out to sea, which increases building risks and costs, and consenting bodies are cautious – partly because they are seeing their budgets slashed. As such, one issue for this fund is whether there will be enough schemes to invest in.

Let’s not forget that we have recently seen a planned extension of London Array axed because of birds; the planned 1.8GW Argyll Array scrapped because of basking sharks; and RWE handed back the rights to the 1.2GW Atlantic Array.

These all show that we must ask very serious questions about the state of the market when we look beyond 2020.

A lack of new developments entering the pipeline would mean a limited pool of new projects for the fund to invest in. And that would make it tough to attract risk-averse institutions that want to spread their risk and see future fund growth.

There’s no denying that the GIB has a track record of delivery. Irrespective, long-term, the health of this fund relies on the health of the sector.

Spending money can be hard work. It takes time and effort.

It's even tougher when you set the parameters that the cash has do two things – back ‘green projects’ and maintain strong, commercial terms.

That is the situation facing the UK’s government-backed Green Investment Bank, which this week revealed its first set of full-year results. It has made a strong start and the results paint a pretty picture of what amounts to a busy 18 months.

So far, the bank has invested £1.3bn in 26 projects and leveraged £3.5bn of private investment. Half of this is in offshore wind, with deals at projects including Westermost Rough, Gwynt y Mor and London Array. This also bolsters the status of the UK as an offshore wind development hub. And, given the increasingly global ambitions of this area of the market, that is good news.

But arguably the most exciting announcement was the bank's plan for a £1bn offshore wind fund, where it is aiming to raise money from long-term investors to buy equity stakes in operational projects.

On paper, the fund has the makings of another cunning plan. Shaun Kingsbury, the bank’s chief executive, confirmed that the thinking is to crowd in additional capital. That’s similar to how the bank operates when making direct investments.

Under this approach, the bank can pool investments at the beginning of the process and then take control of the capital deployment – something that Kingsbury now feels his team has the track record and credibility to do.

Certainly the bank has built its reputation over the last 18 months, and the UK offshore wind sector has established itself as a world leader. Therefore it follows that we expect the £1bn fund to attract interest from institutions including pension funds who want exposure to a growth market.

There are plenty of reasons why they would want to. UK offshore is not beset by the same political uncertainty as the onshore sector.

And don’t forget, there’s already an interest that’s been expressed by investors. Masdar Energy injected capital into London Array and Marubeni Corporation took a stake in Gwynt y Môr. Meanwhile the likes of Balfour Beatty, Macquarie Capital and Mitsubishi have invested in offshore transmission.

Investors should also like the idea of investing in wind farms that are already generating power – and by proxy, revenue.

However, at the same time, the sector is experiencing growing pains. Projects are getting further out to sea, which increases building risks and costs, and consenting bodies are cautious – partly because they are seeing their budgets slashed. As such, one issue for this fund is whether there will be enough schemes to invest in.

Let’s not forget that we have recently seen a planned extension of London Array axed because of birds; the planned 1.8GW Argyll Array scrapped because of basking sharks; and RWE handed back the rights to the 1.2GW Atlantic Array.

These all show that we must ask very serious questions about the state of the market when we look beyond 2020.

A lack of new developments entering the pipeline would mean a limited pool of new projects for the fund to invest in. And that would make it tough to attract risk-averse institutions that want to spread their risk and see future fund growth.

There’s no denying that the GIB has a track record of delivery. Irrespective, long-term, the health of this fund relies on the health of the sector.