Centrica last week closed the refinancing of a couple of operational wind assets in the UK following signing on 27 October.

The portfolio - known as Boreas - includes its Lynn and Inner Dowsing (180MW) offshore wind farm and Glens of Foudland (26MW) onshore wind farm.

At the same time, a 50 per cent equity stake in the wind farms was sold to US-based investment management company TCW for a cash consideration of £84 million (US$140m).

A total of 14 commercial banks participated in the £340.94 million (US$570m) refinancing suggesting a strong appetite for the deal from both debt and equity players.

IJ Reporter Verity Ratcliffe considers the transaction and discusses the implications of the transaction both on the financing of Centrica's upcoming projects and the wider UK offshore wind market.

The projects

Glens of Foudland

Glens of Foudland is an onshore wind farm, 7.5km east of Huntly in Aberdeenshire.
Centrica acquired this 26MW onshore wind farm from Renewable Energy Systems (RES) in October 2004.

The 20-turbine wind farm generated its first commissioning power in May 2005. It has an operational life of 25 years, with RES operating and maintaining the site on Centrica's behalf for the initial five years.

The turbines each have a capacity of 1.3MW and were supplied by Bonus of Denmark. Each turbine tower is 47 metres high with a rotor diameter of 62 metres, giving a total height to the blade tip of 78 metres. The towers, which are made of steel, are bolted onto concrete foundations and the blades are made from reinforced glassfibre.

By the end of 2004, foundation work for the 20 turbines had been completed. The blades, towers and nacelles were delivered in February 2005. The first turbine was erected in March 2005 and the wind farm was fully commissioned and delivering power to Aberdeenshire in July 2005.

Lynn and Inner Dowsing

Major construction work on the Lynn and Inner Dowsing offshore wind farms was completed to schedule in 2008. Foundations for the 54 turbines were installed during 2007, as were the power cables connecting the turbines and the wind farms to shore.

Installation of the 3.6MW wind turbine generators, supplied by Siemens Power Generation, commenced in March 2008 and was completed in July 2008. The wind farms became fully operational with the completion of commissioning in March 2009.

Installation of the foundations and turbines was carried out by the MV Resolution, a purpose-built wind farm installation vessel, owned and operated by Middlesbrough-based firm MPI Offshore. The 38 metres wide ship uses six legs to secure its position on the seabed prior to installation. Cable laying within the wind farm was carried out during 2007 and 2008. These subsea cables were buried up to 2 metres deep in the seabed.

Each turbine tower is roughly 80 metres above mean sea level and has a rotor diameter of 107 metres, giving a total height to the blade tip of 134 metres. The blades are made from reinforced glassfibre. The turbines cover an area of 20km2 with the closest row of turbines being 5km from the coast and the furthest being 9km offshore. The wind farms will have an operational life of 20 years.

The transaction

The wind farms - worth £460 million - were brought to completion using Centrica's equity alone. The refinancing substitutes in £340.94 million (US$570m) debt in the following tranches:

• £290.94 million (US$485m) - term loan
• £35 million (US$58m) - letter of credit
• £15 million (US$25m) - working capital

The following banks provided debt in the club deal:

• Bank of Tokyo-Mitsubishi - £40.11 million (US$66.9m)
• Santander - £40.11 million (US$66.9m)
• HSBC - £32.09 million (US$53.5m)
• Lloyds TSB - £32.09 million (US$53.5m)
• RaboBank - £32.09 million (US$53.5m)
• Dexia - £26.74 million (US$44.6m)
• Calyon - £21.39 million (US$35.7m)
• BayernLB - 20.06 million (US$33.4m)
• Bank of Ireland - £18.72 million (US$31.2m)
• BNP Paribas Fortis - £18.72 million (US$31.2m)
• National Australia Bank - £18.72 million (US$31.2m)
• KfW - £16.04 million (US$26.7m)
• BBVA - £13.37 million (US$22.3m)
• NIBC Bank - £10.70 million (US$17.8m)

The transaction was significantly oversubscribed. Tenor on all three facilities stands at 15 years. Signing occurred on 27 October which was followed by financial close on 5 November.

Centrica also agreed the sale of a 50 per cent equity stake in the three wind farms to US-based investment management company TCW for a cash consideration of £84 million (US$137m). Financial close of the equity portion of the transaction is expected shortly.

Centrica's profit on disposal of this 50 per cent equity stake will be around £50 million (US$82m). Reported operating profit in the year ended 31 December 2008 from these wind assets was £17 million (US$28m), however, the Lynn and Inner Dowsing wind farms were not fully commissioned until December 2008.

Future Centrica projects

With the Boreas deal now concluded, Centrica is set to focus on financing its 270MW Lincs offshore wind farm to be situated 8km off the coast of Skegness next to the Lynn and Inner Dowsing projects.

The UK Government gave the project the green light last year (IJ News, 21 October 2008). Investment in the wind farm, which was consented a year ago, is set to total around £725 million (US$1.18bn) and the project is expected to start generating power towards the end of 2012.

As was the case with Glens of Foudland wind farm, Centrica acquired the Lincs project in 2003 from wind farm developer Renewable Energy Systems (RES), which was responsible for the initial proposal. Centrica has retained the services of RES under development services agreements.

Speaking to IJ, managing director Sarwjit Sambhi said that Centrica may well follow a similar approach in financing the Lincs project as was adopted for the Boreas portfolio. Alternatively, it may insert debt into the financing during the construction stage. Also, the option to sell off a portion of the equity in Lincs remains open.

Under current UK Government proposals, Lincs will attract two ROCs for every megawatt hour produced, following the UK Government's decision in April to enhance the level of support provided to new offshore wind projects.

Beyond Lincs, Centrica plans to develop a 540MW offshore wind farm in the Greater Wash which will be known as Docking Shoal. Centrica was awarded a lease from the Crown Estate in 2004 for the development of the project as part of its second round of leasing. An application for consent for the Docking Shoal development was submitted to the Department of Energy and Climate Change (DECC) in early December 2008 (IJ News, 5 January 2009).

Another project to be developed as part of the Crown Estate's Round 2 is Race Bank, also in the Greater Wash. Centrica was awarded a lease from the Crown Estate in 2004 for the project. The proposed wind farm would have a potential maximum capacity of 620MW. An application for consent for the Race Bank development was submitted to the Department of Energy and Climate Change in January 2009.

The UK offshore wind sector

As the first successfully project financed UK offshore wind transaction Centrica's ability to successfully secure debt in what remains a tight credit market has been monitored closely by the rest of the industry.

Fourteen banks - some of which have in the past said that they would not lend to offshore wind projects - participated in the deal.

As developers prepare to finance offshore wind farms at sites leased by the Crown Estate as part of its three rounds of licensing, the success of Boreas undoubtedly bodes well.

However, as operational assets developed by an established developer, is far from a blueprint for the greenfield UK offshore wind sector.

Nevertheless, according to Ernst & Young director Arnaud Bouillé, we are witnessing a slow movement towards a project financed offshore wind sector and Centrica's Boreas deal could well provide a shot in the arm for greenfield offshore projects.