Fully operational since October 2012, when it was granted state aid approval by the European Commission to make investments on commercial terms, GIB has so far made two investments in offshore wind.
The most recent of these came in March, when GIB made an equity investment of £57.5 million to take a 24.95% equity stake in RWE’s Rhyl Flats offshore project. GIB invested in the 90MW project alongside fund Greencoat UK Wind, which in March floated itself for £260 million on the London Stock Exchange with the sole intention of buying up equity stakes in operational wind farms, both onshore and offshore, from RWE and SSE.
By investing alongside Greencoat, GIB allowed RWE to sell off 49.9% of its interests in the project, enabling it to free up £115 million of capital while retaining majority control.
It is this role of enabling the "recycling" of capital from operational projects by investing alongside others that GIB regards as its primary aim in the offshore wind sector.
This recycling, which frees up developers’ cash to enable them to invest in the construction of new projects, can be made either in the form of an equity stake as with Rhyl Flats, or in the form of a debt refinancing, which GIB did in its first investment in the offshore wind sector.
Refinancing
This first investment in offshore wind was the £224 million refinancing of investor OPM’s stake in the 367MW Walney offshore wind farm, which has been fully operational since last summer. OPM, a joint venture between renewables-focused private-equity player Ampere Equity Fund and Dutch pension fund PGGM, bought a 24.8% in Walney from developer Dong Energy in 2010.
By refinancing the stake with bank debt — GIB and four commercial banks each loaned around £45 million to the project for seven years — now the project is operational, OPM is able to realise some profits from taking on construction risk and, at the same time, use the original equity to invest in other projects.
Wider role
Complementary to its role of recycling capital, the GIB also envisions co-investing on some projects at the construction stage. However, it is as yet unclear exactly what form a construction stage investment would take — it could be equity, loans, or some form of subordinated debt tranche or credit guarantee to mitigate construction risk and encourage other investors.
Some would like to see GIB also take a lead role in establishing a viable bond market for offshore wind. Last year’s UK Offshore Wind Market Study by the Crown Estate suggested that GIB could provide a first-loss debt tranche in a bond issuance that would enhance the credit rating of offshore wind bonds.
Essentially, GIB’s investment would act as a buffer, meaning that it would be hit first before investors in the main bond, therefore giving them more comfort and improving the bond’s credit rating. GIB has not announced any plans for such an instrument… yet.
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