Renewable energy can offer PE sector a long-term opportunity.
LOOK across the broad expanse of beach from the pleasant, if windy, promenade adjacent to Crosby Point and you will see it is dominated by one hundred of Sir Anthony Gormley's sombre, silent, cast-iron figures.
Several are buried in the sand up to their knees; others to their midriff; last week's storms resulted in a handful being pushed backwards, but all face away from the land and towards the sea, or across to the Wirral where a revitalised New Brighton has started attracting daytrippers in numbers last seen when the resort's now demolished Art Deco open-air swimming pool was its principal attraction.
The promenade which takes daytrippers from New Brighton eastwards towards the ferry terminal at Seacombe is clearly visible. Here, the iconic ferry 'cross the Mersey gives dozens of mobile phone users a prolonged opportunity to capture the money shot for distribution across social media, Liverpool's 'Three Graces' that dominate the city's waterfront, now a World Heritage site. The money shot? Surely, private equity houses would argue, that's the one looking west from Crosby towards Burbo Bank at the mouth of the river Mersey where one of the world's most profitable offshore wind farms is also clearly visible.
They have a point. Renewable energy projects have long been on private equity's radar. As far back as 2004 HgCapital became the first major UK private equity firm to establish a dedicated renewable energy investment team, raising its first fund in 2006 at [euro]303 million.
Four years ago, HgCapital sold its 177MW wind portfolio, including the developer RidgeWind, to Blue Energy. During HgCapital's ownership, RidgeWind grew from a development portfolio that included one permitted site of 16MW, to successfully permitting a further 6 sites with a capacity eleven times greater.
Private equity house Terra Firma notes that "the wind energy market has expanded rapidly, from 14 GW at the end of 1999 and it is expected that the industry will continue to install between 40 GW and 60 GW of new capacity each year for the foreseeable future."
In addition, the firm highlighted the 15% fall in wind turbine costs between 2009 and 2011, a development likely to ensure that the pricing environment remains very competitive.
Today's 200 metre-high turbines come with 'smart' aerodynamic carbon blades capable of adjusting their shape to maximise the return from the wind flow. These giants in the sea can already produce 8MW of power; within a decade, capacity is expected to rise to 15MW. Moreover, any potential problems are identified early as whole farms are inspected by drones in a matter of hours, not days.
The cost of producing energy from offshore wind turbines has been falling for some time, but a pivotal moment in the industry's history arrived in mid-September when a strike price of PS57.50 per megawatt hour was revealed at two colossal wind projects. The price is half that agreed in contracts signed as recently as 2015 and, as technology continues to make the harnessing of wind power increasingly cost effective, industry insiders expect the private equity sector to take an even closer interest in this burgeoning industry, one in which the UK is a world leader.
Geography accounts for this status. The waters surrounding the UK benefit from two factors that are crucial in the development of wind power: comparatively shallow waters and lots of wind, blowing at optimum speeds, from Burbo Bank to the Bristol Channel, off the Norfolk coast and along the North Sea coast. A total of 10 gigawatts of installed capacity is planned by 2028, but as production prices fall, competition among PE firms to fund this expansion is likely to be fierce.
Indeed, as the harnessing of wind power becomes more socially acceptable than the burning of fossil fuels and significantly cheaper than nuclear power (the strike price for the nuclear deal at Hinkley Point is not only index-linked but agreed at what looks like an expensive PS102 per megawatt hour), demand for more offshore wind farms looks set to grow.
Pie in the sky? Perhaps not, especially after a consortium of European operators agreed to develop a 'North Sea Wind Power Hub' with capacity to equal that produced by more than one hundred nuclear reactors. Reinforcing the view that wind power will see considerably more PE involvement is a report published in the summer by Wind Europe which suggested that the UK could produce almost 600GW, significantly in excess of the country's peak requirement for 535GW at the depth of winter. The excess could be sold through European grids, another potential source of income for PE firms keen to get further involved in the renewable energy sector.
'' The waters surrounding the UK benefit from two factors that are crucial in the development of wind power: comparatively shallow waters and lots of wind at optimum speeds
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|Publication:||The Birmingham Post (England)|
|Date:||Sep 21, 2017|
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