Sponsors SSE, Copenhagen Infrastructure Partners and SDIC Power reached financial close on the £2.6 billion ($3.7 million), 588MW Beatrice offshore wind project in the Outer Moray Firth, Scotland on 20 May 2016.

The project demonstrates ongoing appetite for UK offshore wind, despite the project being developed in the headwinds of changing regulatory regimes, a recession, and a utility sponsor which has changed its operating and investment models over the course of the project’s long gestation period.

Market observers had been waiting for Beatrice to close for some time. The project has been in the development pipeline for well over a decade: at its genesis in 2004, the project was envisaged by original sponsor SSE as a 1GW mega-farm, one of the largest in the world.

But by the time it was fully financed 12 years later, sponsor SSE’s appetite for major greenfield renewables investment had waned. Beatrice is one of the survivors of SSE’s decision to scale back its offshore wind development activities.

In March 2014, it announced its plans to drop its 50% stake in the 504MW Galloper project and reduce its stake in the Beatrice project. Beatrice was cut down in capacity from the 1GW size originally mooted in 2004 to 664MW, before being revised down again in September 2015 to today's 588MW.  

One-off state support

Beatrice was financed with the help of a subsidy deal from the UK government that is unlikely to be replicated. The project won an ‘early investment contract’ from the government in 2014, a device intended to enable sponsors to give investors comfort in the tricky in-between phase between the UK’s outgoing Renewables Obligation scheme and the new Contracts for Difference (CfD) scheme.

The 15-year contracts were handed out before the official CfD auctions started, with Beatrice allocated an inflation-linked strike price of £140 per MWh of energy it produces. Future offshore wind projects will have to compete in auctions, and are unlikely to receive this level of support.

Financing 

The sponsors began active talks with lenders for the financing of Beatrice in October 2015, with the European Investment Bank approving a £525 million loan for the project in late October. Export credit agency EKF guaranteed £300 million of the EIB's loan.

The deal closed seven months later, on 20 May 2016, and the close triggered a simultaneous final investment decision for the project.

Lenders on the £1.96 billion debt are BNP Paribas, CBA, European Investment Bank, ING, La Caixa, KfW, Lloyds, MUFG, Natixis, RBS, Santander, Siemens Bank, Societe Generale and SMBC. Lenders on the all-senior debt have taken varying ticket sizes. Co-sponsor Copenhagen Infrastructure Partners has also taken a smaller £70 million ticket. 

Tenor is 15-years plus construction. Pricing is understood to be between 200-210bp over Libor, with step-ups triggered after construction is completed. 

Work at the operations and maintenance facility in Wick and the transmission works in Moray will commence this year. Offshore construction will begin in 2017. The wind farm is expected to become fully operational in 2019.   

Changing hands

As financing progressed in the winter of 2015/16, Beatrice suggested that UK offshore wind equity at a pre-construction stage had become an attractive prospect for a range of investors. Equity slices in the project changed hands rapidly at the start of 2016. Repsol exited the project in February 2016, when it agreed to sell its UK offshore wind business to SDIC Power of China for €238 million ($269.2 million).

The UK’s Green Investment Bank (GIB) decided to walk away from a deal to acquire an equity stake in the project in January. As IJGlobal exclusively reported in November 2015, the GIB was in talks to acquire a stake from principal sponsor SSE at financial close. SSE sold 10% of its stake of the project to CIP in the same month.

Future implications

One adviser on the project told IJGlobal that the project is one of the last to be financed before the effects of the new CfD regime fully kick in. “The CfD regime means fewer projects are likely to be in the pipeline going forwards,” they said. “The past few years have been a bit of a golden period for offshore wind in the UK, and we had a bit of a bumper crop (of projects). People are keen to be involved on these big trophy deals. With CfDs, there’s only likely to be one or two projects a year that win support contracts. If lenders don’t manage to get on these deals, they’ll have missed out for a whole year. I see syndication becoming more aggressive as more lenders want a presence on fewer deals.”

Advisers

Linklaters provided legal advice to the deal. MUFG acted as financial adviser. Norton Rose Fulbright also advised the lenders.