Financing Wind 2016: Auctions bigger concern than Brexit

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Richard Heap
October 31, 2016
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Financing Wind 2016: Auctions bigger concern than Brexit

Brexit will have little impact on growth in the global wind sector, and even the impact on UK wind is likely to be limited. That was the verdict of three industry experts in the opening session of our Financing Wind 2016 conference in London last Thursday.

This discussion focused on the major financing issues and trends that are affecting onshore and offshore wind in established markets in Europe and North America. The move to competitive auctions for feed-in tariffs and M&A activity throughout the supply chain are both set to have a bigger impact on the wind sector than Brexit.

Wolfgang Bischoff, head of global equity in the energy finance division at Siemens Financial Services, said that growth in the wind sector was dependent on the energy strategies of individual nations and global agreements like the Paris climate change deal. Brexit is unlikely to have much of an impact on either of these.

“My view is that energy policy to a large extent continues to be national policy. That means every country for themselves, so I don’t see Brexit having a big impact on renewables strategies and policies in continental Europe,” he said.

The change of government in the UK following the Brexit vote in June has delayed plans for a planned auction of support for new wind farms under the Contracts for Difference regime.

The auction, originally planned for the fourth quarter of 2016, has been delayed until 2017; and the government is likely to be sensitive about when it starts the process after criticism from the National Audit Office over high subsidies for offshore wind.

Boris Balan, vice president of Europe at Northland Power, said Brexit could make it more difficult for UK firms looking to do deals in the European Union; or firms from the EU investing in the UK. Only post-Brexit trade deals can give clarity here.

But Balan said that competitive auctions would have a far bigger impact on firms across the supply chain, both in onshore and offshore wind. He said that auctions were set to squeeze profit margins on new developments and that, in response, companies across the supply chain needed to find ways to provide their products and services more cheaply. He added this could make it tougher for smaller firms to compete.

“It has happened very quickly, but the trend is clear. Companies in the supply chain have been tightening their belts,” he said.

Bischoff said competitive auctions were a good thing overall because they help to drive down the levelised cost of energy from offshore wind farms, but also increased the risks for developers in the sector: “Today, you have to invest a lot of money to get the project going… and then enter a very aggressive lottery.”

Dominik Thumfart, managing director of infrastructure and equity in the debt capital markets team at Deutsche Bank, said he expected competitive auctions to lead to more consolidation in the sector. Manufacturers and utilities are seeking to drive down the costs of their products and projects respectively, and acquisitions can help both to leverage economies of scale to reach those goals.

And Thumfart spoke more widely about the market too.

He added that banks would continue to be important financiers of new wind projects because many of the institutional investors that have entered the sector would not be comfortable evaluating or taking construction risks.

And historic low interest rates should reinforce the status of stable cash-generating assets like wind farms as attractive investment projects, and thus help to support the flow of money into the sector.

If Brexit uncertainty forces the Bank of England and European Central Bank to keep interest rates low then this should also support that wind needs to maintain its growth. We would never write off Brexit as an irrelevance for wind, of course.

But, for now, it looks like there would be good as well as bad.

Brexit will have little impact on growth in the global wind sector, and even the impact on UK wind is likely to be limited. That was the verdict of three industry experts in the opening session of our Financing Wind 2016 conference in London last Thursday.

This discussion focused on the major financing issues and trends that are affecting onshore and offshore wind in established markets in Europe and North America. The move to competitive auctions for feed-in tariffs and M&A activity throughout the supply chain are both set to have a bigger impact on the wind sector than Brexit.

Wolfgang Bischoff, head of global equity in the energy finance division at Siemens Financial Services, said that growth in the wind sector was dependent on the energy strategies of individual nations and global agreements like the Paris climate change deal. Brexit is unlikely to have much of an impact on either of these.

“My view is that energy policy to a large extent continues to be national policy. That means every country for themselves, so I don’t see Brexit having a big impact on renewables strategies and policies in continental Europe,” he said.

The change of government in the UK following the Brexit vote in June has delayed plans for a planned auction of support for new wind farms under the Contracts for Difference regime.

The auction, originally planned for the fourth quarter of 2016, has been delayed until 2017; and the government is likely to be sensitive about when it starts the process after criticism from the National Audit Office over high subsidies for offshore wind.

Boris Balan, vice president of Europe at Northland Power, said Brexit could make it more difficult for UK firms looking to do deals in the European Union; or firms from the EU investing in the UK. Only post-Brexit trade deals can give clarity here.

But Balan said that competitive auctions would have a far bigger impact on firms across the supply chain, both in onshore and offshore wind. He said that auctions were set to squeeze profit margins on new developments and that, in response, companies across the supply chain needed to find ways to provide their products and services more cheaply. He added this could make it tougher for smaller firms to compete.

“It has happened very quickly, but the trend is clear. Companies in the supply chain have been tightening their belts,” he said.

Bischoff said competitive auctions were a good thing overall because they help to drive down the levelised cost of energy from offshore wind farms, but also increased the risks for developers in the sector: “Today, you have to invest a lot of money to get the project going… and then enter a very aggressive lottery.”

Dominik Thumfart, managing director of infrastructure and equity in the debt capital markets team at Deutsche Bank, said he expected competitive auctions to lead to more consolidation in the sector. Manufacturers and utilities are seeking to drive down the costs of their products and projects respectively, and acquisitions can help both to leverage economies of scale to reach those goals.

And Thumfart spoke more widely about the market too.

He added that banks would continue to be important financiers of new wind projects because many of the institutional investors that have entered the sector would not be comfortable evaluating or taking construction risks.

And historic low interest rates should reinforce the status of stable cash-generating assets like wind farms as attractive investment projects, and thus help to support the flow of money into the sector.

If Brexit uncertainty forces the Bank of England and European Central Bank to keep interest rates low then this should also support that wind needs to maintain its growth. We would never write off Brexit as an irrelevance for wind, of course.

But, for now, it looks like there would be good as well as bad.

Brexit will have little impact on growth in the global wind sector, and even the impact on UK wind is likely to be limited. That was the verdict of three industry experts in the opening session of our Financing Wind 2016 conference in London last Thursday.

This discussion focused on the major financing issues and trends that are affecting onshore and offshore wind in established markets in Europe and North America. The move to competitive auctions for feed-in tariffs and M&A activity throughout the supply chain are both set to have a bigger impact on the wind sector than Brexit.

Wolfgang Bischoff, head of global equity in the energy finance division at Siemens Financial Services, said that growth in the wind sector was dependent on the energy strategies of individual nations and global agreements like the Paris climate change deal. Brexit is unlikely to have much of an impact on either of these.

“My view is that energy policy to a large extent continues to be national policy. That means every country for themselves, so I don’t see Brexit having a big impact on renewables strategies and policies in continental Europe,” he said.

The change of government in the UK following the Brexit vote in June has delayed plans for a planned auction of support for new wind farms under the Contracts for Difference regime.

The auction, originally planned for the fourth quarter of 2016, has been delayed until 2017; and the government is likely to be sensitive about when it starts the process after criticism from the National Audit Office over high subsidies for offshore wind.

Boris Balan, vice president of Europe at Northland Power, said Brexit could make it more difficult for UK firms looking to do deals in the European Union; or firms from the EU investing in the UK. Only post-Brexit trade deals can give clarity here.

But Balan said that competitive auctions would have a far bigger impact on firms across the supply chain, both in onshore and offshore wind. He said that auctions were set to squeeze profit margins on new developments and that, in response, companies across the supply chain needed to find ways to provide their products and services more cheaply. He added this could make it tougher for smaller firms to compete.

“It has happened very quickly, but the trend is clear. Companies in the supply chain have been tightening their belts,” he said.

Bischoff said competitive auctions were a good thing overall because they help to drive down the levelised cost of energy from offshore wind farms, but also increased the risks for developers in the sector: “Today, you have to invest a lot of money to get the project going… and then enter a very aggressive lottery.”

Dominik Thumfart, managing director of infrastructure and equity in the debt capital markets team at Deutsche Bank, said he expected competitive auctions to lead to more consolidation in the sector. Manufacturers and utilities are seeking to drive down the costs of their products and projects respectively, and acquisitions can help both to leverage economies of scale to reach those goals.

And Thumfart spoke more widely about the market too.

He added that banks would continue to be important financiers of new wind projects because many of the institutional investors that have entered the sector would not be comfortable evaluating or taking construction risks.

And historic low interest rates should reinforce the status of stable cash-generating assets like wind farms as attractive investment projects, and thus help to support the flow of money into the sector.

If Brexit uncertainty forces the Bank of England and European Central Bank to keep interest rates low then this should also support that wind needs to maintain its growth. We would never write off Brexit as an irrelevance for wind, of course.

But, for now, it looks like there would be good as well as bad.

Brexit will have little impact on growth in the global wind sector, and even the impact on UK wind is likely to be limited. That was the verdict of three industry experts in the opening session of our Financing Wind 2016 conference in London last Thursday.

This discussion focused on the major financing issues and trends that are affecting onshore and offshore wind in established markets in Europe and North America. The move to competitive auctions for feed-in tariffs and M&A activity throughout the supply chain are both set to have a bigger impact on the wind sector than Brexit.

Wolfgang Bischoff, head of global equity in the energy finance division at Siemens Financial Services, said that growth in the wind sector was dependent on the energy strategies of individual nations and global agreements like the Paris climate change deal. Brexit is unlikely to have much of an impact on either of these.

“My view is that energy policy to a large extent continues to be national policy. That means every country for themselves, so I don’t see Brexit having a big impact on renewables strategies and policies in continental Europe,” he said.

The change of government in the UK following the Brexit vote in June has delayed plans for a planned auction of support for new wind farms under the Contracts for Difference regime.

The auction, originally planned for the fourth quarter of 2016, has been delayed until 2017; and the government is likely to be sensitive about when it starts the process after criticism from the National Audit Office over high subsidies for offshore wind.

Boris Balan, vice president of Europe at Northland Power, said Brexit could make it more difficult for UK firms looking to do deals in the European Union; or firms from the EU investing in the UK. Only post-Brexit trade deals can give clarity here.

But Balan said that competitive auctions would have a far bigger impact on firms across the supply chain, both in onshore and offshore wind. He said that auctions were set to squeeze profit margins on new developments and that, in response, companies across the supply chain needed to find ways to provide their products and services more cheaply. He added this could make it tougher for smaller firms to compete.

“It has happened very quickly, but the trend is clear. Companies in the supply chain have been tightening their belts,” he said.

Bischoff said competitive auctions were a good thing overall because they help to drive down the levelised cost of energy from offshore wind farms, but also increased the risks for developers in the sector: “Today, you have to invest a lot of money to get the project going… and then enter a very aggressive lottery.”

Dominik Thumfart, managing director of infrastructure and equity in the debt capital markets team at Deutsche Bank, said he expected competitive auctions to lead to more consolidation in the sector. Manufacturers and utilities are seeking to drive down the costs of their products and projects respectively, and acquisitions can help both to leverage economies of scale to reach those goals.

And Thumfart spoke more widely about the market too.

He added that banks would continue to be important financiers of new wind projects because many of the institutional investors that have entered the sector would not be comfortable evaluating or taking construction risks.

And historic low interest rates should reinforce the status of stable cash-generating assets like wind farms as attractive investment projects, and thus help to support the flow of money into the sector.

If Brexit uncertainty forces the Bank of England and European Central Bank to keep interest rates low then this should also support that wind needs to maintain its growth. We would never write off Brexit as an irrelevance for wind, of course.

But, for now, it looks like there would be good as well as bad.

Brexit will have little impact on growth in the global wind sector, and even the impact on UK wind is likely to be limited. That was the verdict of three industry experts in the opening session of our Financing Wind 2016 conference in London last Thursday.

This discussion focused on the major financing issues and trends that are affecting onshore and offshore wind in established markets in Europe and North America. The move to competitive auctions for feed-in tariffs and M&A activity throughout the supply chain are both set to have a bigger impact on the wind sector than Brexit.

Wolfgang Bischoff, head of global equity in the energy finance division at Siemens Financial Services, said that growth in the wind sector was dependent on the energy strategies of individual nations and global agreements like the Paris climate change deal. Brexit is unlikely to have much of an impact on either of these.

“My view is that energy policy to a large extent continues to be national policy. That means every country for themselves, so I don’t see Brexit having a big impact on renewables strategies and policies in continental Europe,” he said.

The change of government in the UK following the Brexit vote in June has delayed plans for a planned auction of support for new wind farms under the Contracts for Difference regime.

The auction, originally planned for the fourth quarter of 2016, has been delayed until 2017; and the government is likely to be sensitive about when it starts the process after criticism from the National Audit Office over high subsidies for offshore wind.

Boris Balan, vice president of Europe at Northland Power, said Brexit could make it more difficult for UK firms looking to do deals in the European Union; or firms from the EU investing in the UK. Only post-Brexit trade deals can give clarity here.

But Balan said that competitive auctions would have a far bigger impact on firms across the supply chain, both in onshore and offshore wind. He said that auctions were set to squeeze profit margins on new developments and that, in response, companies across the supply chain needed to find ways to provide their products and services more cheaply. He added this could make it tougher for smaller firms to compete.

“It has happened very quickly, but the trend is clear. Companies in the supply chain have been tightening their belts,” he said.

Bischoff said competitive auctions were a good thing overall because they help to drive down the levelised cost of energy from offshore wind farms, but also increased the risks for developers in the sector: “Today, you have to invest a lot of money to get the project going… and then enter a very aggressive lottery.”

Dominik Thumfart, managing director of infrastructure and equity in the debt capital markets team at Deutsche Bank, said he expected competitive auctions to lead to more consolidation in the sector. Manufacturers and utilities are seeking to drive down the costs of their products and projects respectively, and acquisitions can help both to leverage economies of scale to reach those goals.

And Thumfart spoke more widely about the market too.

He added that banks would continue to be important financiers of new wind projects because many of the institutional investors that have entered the sector would not be comfortable evaluating or taking construction risks.

And historic low interest rates should reinforce the status of stable cash-generating assets like wind farms as attractive investment projects, and thus help to support the flow of money into the sector.

If Brexit uncertainty forces the Bank of England and European Central Bank to keep interest rates low then this should also support that wind needs to maintain its growth. We would never write off Brexit as an irrelevance for wind, of course.

But, for now, it looks like there would be good as well as bad.

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Not a member yet?

Become a member of the 6,500-strong A Word About Wind community today, and gain access to our premium content, exclusive lead generation and investment opportunities.