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Hesitation from banks in financing offshore wind projects

Investors in equity and private capital are expected to lead the way in reducing risks associated with future wind energy projects offshore, as banks closely observe their actions before committing to such investments.

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Offshore wind investment may face reduced risk with early action from equity investors and private...
Offshore wind investment may face reduced risk with early action from equity investors and private capital, as banks await their lead.

Hesitation from banks in financing offshore wind projects

Offshore wind project financing faces hesitation due to concerns over Chinese equipment, a new report from energy research firm BNEF reveals.

The reluctance stems from apprehensions surrounding geopolitical and security issues, a lack of precedent, and doubts about guarantees from China-based manufacturers regarding equipment performance. This hesitancy from financial institutions has resulted in a wait-and-see approach, with banks anticipating equity investors and private capital to act first to mitigate future risks before considering debt financing.

Bejing-headquartered Goldwind, the world's top wind turbine supplier in 2024, along with Envision, Windey, and Mingyang, were among the leading Chinese manufacturers. However, the confidence of executives is higher in onshore Chinese turbines compared to offshore, given China's experience with those projects, BNEF noted.

These findings underline private sector apprehensions over offshore wind investment, which plays a crucial role in the UK government's plans for clean power by 2030.

The report. however, suggests that the UK may miss its five-year target of 43GW of offshore wind as developers either delay or cancel projects due to rising costs. This comes after the world's largest offshore wind developer, Ørsted, paused work on Hornsea 4, one of the North Sea's largest projects, earlier this month.

Meredith Annex, one of the report's authors, elaborated on the matter, stating that this hesitancy extends across the board, as developers are paying more attention to the projected return on investment for each project. The nature of debt financing makes investors prioritize the return on the asset, escalating competition for the most remunerative projects.

"It’s not just banks; developers are also laying more emphasis on the expected return from projects," Annex explained. However, she also mentioned that this wariness would lessen when equity investors and private capital, willing to bear greater risk, lead the way.

Annex raised queries about the timely delivery of Chinese workers and equipment as well as any potential disruptions to operations or performance due to these factors. She added that the Chinese manufacturers are carefully considering the management of their operation and maintenance supply chains.

The Department for Energy Security and Net Zero (DESNZ) categorically rejected claims that the UK would fail to meet its 2030 target. The organization emphasized its strong pipeline of projects, aiming to deliver 43 to 50GW offshore wind by 2030.

Frank Gordon, director of policy and head of power at the Renewable Energy Association, emphasized the importance of offshore wind but encouraged the support of a range of renewable energy options for system resilience, job creation, and economic growth. He suggested that other technologies such as geothermal, biomass, and hydro could be scaled up to compensate for potential shortfalls in offshore wind capacity.

  1. The offshore wind project financing faces hesitation due to concerns over Chinese equipment, as revealed in a report from energy research firm BNEF.
  2. This hesitancy stems from geopolitical and security issues, a lack of precedent, and doubts about guarantees from China-based manufacturers regarding equipment performance.
  3. The reluctance has led to a wait-and-see approach, with banks anticipating equity investors and private capital to act first to mitigate future risks before considering debt financing.
  4. Leading Chinese manufacturers like Bejing-headquartered Goldwind, Envision, Windey, and Mingyang are affected by this, with executives having higher confidence in onshore Chinese turbines compared to offshore.
  5. The report underlines private sector apprehensions over offshore wind investment, which plays a crucial role in the UK government's plans for clean power by 2030.
  6. The hesitancy extends across the board, as developers are paying more attention to the projected return on investment for each project, a factor that also affects sports-betting and general news industries.
  7. The Department for Energy Security and Net Zero (DESNZ) categorically rejected claims that the UK would fail to meet its 2030 target, emphasizing its strong pipeline of projects and the importance of supporting a range of renewable energy options for system resilience, job creation, and economic growth, including geothermal, biomass, and hydro.

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