It floats – but is it financeable?
Many great successes start with a failure. Bill Gates’ first company, Traf-O-Data, was a disaster. Walt Disney’s Laugh-O-Gram closed soon after opening. Prior to Harry Potter J.K. Rowling described herself as “the biggest failure I knew”. In 2013, when a client asked us to help them write the finance section of the application for the first floating “3.5 ROC” Scottish round, we did an in-depth review of the floating sector, evaluated what would need to be done to make a project bankable and explained why we were confident that a well-structured project could attract construction finance from both debt and equity providers. The drafting was convincing, the Scottish evaluation entity was supportive, but the project never got to the point where we could verify these assumptions because our client could not find the development funding. Our client does not exist anymore.
On our side, as a financial advisor, we were left with the question of whether we wanted to let the floating offshore wind sector mature before spending more of our time on it, or whether we wanted to add development funding advisory to our services to help our clients bridge the gap before they are ready to look for construction finance and use our core expertise. We raised our long neck, looked at the long-term horizon… and chose the latter.
After studying the status of several technologies, we decided to partner with the most advanced independent technology provider at the time, Principle Power, and we carried out a bankability assessment for them, which we subsequently decided to present to investors and banks in our first floating bankability seminar. The sector-wide free knowledge sharing approach is not standard in a finance industry that is reputed to be secretive, but soon proved to be a winning strategy.
Today the initial failures seen in the floating sector have turned into one of the most successful and fastest-growing markets. And so did our own practice. We have signed 47 mandates in the sector, half of them pure advisory and half of them transaction-based, of which 15 have been closed to date, including some landmark fundings:
- Technology: following up on our long-term cooperation, we raised capital (twice) for Principle Power, in the form of equity at the corporate level, allowing them to continue the development of their Windfloat technology and keep their first-mover advantage.
- Development funding: we have helped several local developers (Progression, Trident, 7 Seas, etc.) to value their early development work, structure their co-development strategy and attract international strategic partners such as utilities or oil & gas companies.
- Buy–side: conversely, we also supported buyers such as Aker (from Hexicon in Sweden) to buy portfolios of projects under development.
- Developers corporate funding: some developers want to raise capital directly in the development company to continue their expansion in new markets and strengthen their capacity to develop their projects whilst keeping their independence. We organised such a process for Simply Blue Energy and closed the transaction with Octopus as investor earlier this year.
- Debt: the sector has not seen its first real non-recourse loan reach financial close yet, but we helped ACS Cobra in their successful closing of a loan dedicated to the Kincardine project.
The thousands of hours spent on these missions gave us one conviction: the assessment we made more than eight years ago that financing will be available for well-structured projects has now been verified. Project development equity, construction equity and debt, corporate equity and debt and technology financing are all available. There are no fundamental issues to floating offshore wind, only challenges. These challenges are still significant in our nascent sector but can be overcome with the structured approach that investors and banks require: knowledge sharing on the technology track-record, transparency on the risks, mitigation of each risk (using the usual technical / contractual / financial / insurance ways to limit, allocate or compensate them), involvement of trusted advisors and reasonable pricing for the risk taken.
The large number of projects being developed globally shows that floating offshore wind is already successful. It will also prove successful in construction, operation and generation of large-scale assets, while becoming cost competitive. There is no doubt about that. The pace of growth will depend on several factors, one of which being how serious the developers will be in respecting the requirements of the finance community. They can count on Green Giraffe to help both the floating and finance sectors to understand each other, so that the gigawatts of renewable energy that our planet needs in its journey to decarbonisation are built sooner rather than later.
See below Green Giraffe’s floating offshore wind track record:
Header image – Artist name: Dock90. Courtesy of Principle Power.