DONG’s latest offshore financing deal, with details confirmed and officialling announced yesterday, is of interest for a number of reasons.
The scale of the project, the sums involved and the number of parties working in collaboration together, all stack up to undoubtedly make the deal a major talking point. And while it's been on the cards for some time, it's no doubt going to set tongues wagging at RenewableUK’s Global Offshore conference next week.
What's more, setting the deal in the context of other large scale project finance initiatives such as Global Tech 1, Meerwind and C Power Phase 2, seems to give lie to the assertion that there is a desperate shortage of funds available for offshore wind developments.
Rather, for the right development, project finance is no longer an issue. The funds are available and there's no shortage of would-be investors. But what makes for the ‘right project’? And what barriers need to be overcome in order to invest?
One supported by a national utility with a controlling stake from the Government – like DONG – certainly helps. Particularly since it substantially reduces the chance of default, or the employment of below-par contractorsn theory at least. And although the deal is ‘non-recourse’, the chance of DONG exiting the project is also calculated to be extremely low.
In terms of securing interest from the banks, a recent A Word About Wind event hosted in partnership with a top three global bank, demonstrated that slowly these major institutions are getting involved.
Yes, it's not an easy process and yes, there's a need to educate these players as they come onboard. But nevertheless, it is possible. And the amount offered up for investment continues to rise.
Construction risk, is for many, still an area to steer clear of, but as a number of our speakers noted, offshore wind is of increasing strategic importance to the banking community - diversifying existing energy portfolios and offering good returns.
And in the case of Lincs, the deal was supported by 10 banks, something that helps ensure that no one institution is overly exposed.
Safety in numbers?
Perhaps. Whatever the case, on paper the deal certainly seems to make sense.
The devil, as ever, will be in the detail.
Execution and management of 10 (minimum) different stakeholders will undoubtedly present headaches along the way but with time and focus, can surely be overcome. Now more than ever, effective project management will prove paramount.
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