Proximo Weekly: Is US offshore wind about to go slow?

A preliminary market sounding is underway for the project financing of the 1.2GW SouthCoast Wind 1 (formerly Mayflower Wind) offshore wind project off the coast of Massachusetts in the US. According to a well-placed source the deal could be launched to banks by the end of the year.

The news is at odds with recent statements from SouthCoast Wind CEO Francis Slingsby: “While SouthCoast has pursued, and is open to other solutions… even after factoring in potential tax incentives; termination, and payment of a financial penalty for termination, has become the prudent commercial course to realise the project due to material and unforeseen supply chain and financing cost increases affecting the whole offshore wind industry.” Presumably, Slingsby’s reference to ”other solutions” is more than just wishful thinking given the deal does appear to be doing the rounds at international project finance banks.

SouthCoast – a joint venture between Shell and Ocean Winds – is not the only US offshore project that has been looking to rebid. Avangrid filed a petition with the Massachusetts state utility regulator, Department of Public Utilities (DPU) late last year to withdraw its 1.2GW Commonwealth Wind project and rebid in the state’s round 4 tender.

Deal or no deal, the problems at the SouthCoast and Commonwealth projects are symptomatic of a global hit on the offshore wind industry from rising supply chain and financing costs. But given the fledgling state of the US market compared to Europe, where bankability and rising costs hurdles are arguably more easily overcome, the cost issues could put a significant temporary dampener on the Biden administration’s offshore wind ambitions.

More than 45GWs of US offshore wind capacity have been proposed by developers – 39GW off the US East Coast, including 11GW off New York and 9.2GW off New Jersey. Off of the US West Coast, floating foundations will be required, with five floating wind lease areas off California awarded to developers in December 2022.

The US government announced in March 2021 its goal of installing 30GW of offshore wind capacity by 2030. It was also forecast that in meeting this 30GW goal, the US economy could see offshore wind investments reaching in excess of $110 billion by 2030.

The target was always ambitious for a nascent industry in a country that has lagged behind its global counterparts. The US currently has just seven wind turbines offshore in the Atlantic Ocean, while Europe, by contrast, has more than 5000. And what many were predicting a fairly rapid catch-up by the US after financial close on its first large-scale offshore wind project in 2021 – the $2.34 billion construction-plus-seven-year senior debt financing for the 800MW Vineyard Wind 1 project – speedy progress is now looking far less certain.

Even without the rising cost issues affecting US offshore wind; permitting delays, rebids and a multitude of other slowing factors (limited availability of service vessels and transmission challenges) could result in a lot of project financings chasing the same pool of experienced offshore wind lenders in the international bank market at around the same time. There are 13 US offshore wind projects at the BOEM permitting stage, and of those six are over 1GW: Dominion Energy’s 2.64GW Coastal Virginia project; SouthCoast Wind phases 1 and 2 (2.4GW in total); Shell and EDF Renewables’ 1.51GW Atlantic Shores; and Orsted's 1.1GW Ocean Wind 1 and 1.4GW Ocean Wind 2 projects. Given many of the schemes have an earlier projected completion date than 2028 for the SouthCoast project, the potential for SouthCoast ending up in a debt traffic jam must be high.

 

Selected news articles from Proximo last week

 

NORTH AMERICA

Future Fiber Networks raises $350m

Future Fiber Networks, a JV between APG and SiFi Networks, has raised $350 million of seven-year financing from a club of banks in its debut debt raise. 

 

EUROPE

ECAs poised to rescue world's largest biomass plant

ECA-backed lenders and shareholders to the world’s largest biomass power station in Teeside, England, are poised to inject £80 million ($102 million) of rescue financing into the project to stave off an imminent collapse into insolvency.

ASIA-PACIFIC

BlackRock raises A$500m for Waratah battery

BlackRock has raised more than A$500 million ($330 million) towards the financing of the A$1 billion 850MW/1680MWh Waratah battery.

 

MIDDLE EAST & AFRICA

Botswana’s first major PV solar deal nears close

Scatec is due to sign a partially locally denominated debt facility for its $60 million 50MW Selebi Phikwe PV project in Botswana – the country’s first large-scale solar scheme and a rare example of local financing for an African project.

 

SOUTH AMERICA 

Sacyr refinances Colombian 4G road

Sacyr Concesiones has closed the $642 million refinancing of the Colombian 4G road project connecting Pamplona and Cucuta.

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