With governments in the Asia Pacific (APAC) increasing their focus on developing low-carbon economies, offshore wind is being included as a key component of their energy transition strategies. With supportive policy and regulatory frameworks, several Asian countries such as China and Japan have achieved early success in offshore development. China, which has already surpassed its 2020 target of 5 GW of offshore wind energy, is now looking to achieve 26 GW by 2024. Countries such as South Korea and Taiwan have set ambitious targets while Vietnam and Australia are actively putting in place regulatory frameworks to promote offshore wind.

However, several challenges still need to be addressed—one of them relates to the development of the corresponding transmission infrastructure, both offshore and onshore. This challenge, however, also presents the opportunity to deploy new and innovative technologies to develop a robust offshore transmission infrastructure with all stakeholders involved.

With this background, Global Transmission Report organised a one-day virtual conference on Offshore Wind Transmission in APAC on April 14, 2021. The mission of the conference was to present the plans, opportunities and technology solutions for the development of the offshore wind sector and the related transmission infrastructure in Asia. To this end, there were detailed discussions with policymakers, regulators, developers, financiers, transmission system operators, technology providers and industry experts to share their perspectives, learnings and issues.

The key takeaways from the session on financing are presented below.

Daniel Mallo, Managing Director, Head of Natural Resources & Infrastructure, Asia Pacific, Société Générale Corporate and Investment Banking, explained that most large-scale projects across the globe are typically developed through a standalone project company, which is owned by the project investors with its own revenues and balance sheet and thus the ability to raise debt on its own merits.

As of now, offshore wind projects have attracted significant equity capital. Countries such as Taiwan have attracted investors from Australia, Germany, Japan, Denmark, Canada etc. Notably, as many as eight different export credit companies have been involved in financing the upcoming offshore wind capacity of 2,500 MW (under development) in Taiwan. However, despite being a highly liquid local banking marketplace, Taiwan has witnessed relatively muted participation by local financial institutions. The majority of the funds have been provided by international banks. This can be attributed to the fact that the offshore wind sector is considerably new for the local banks of the country.

“Countries such as Taiwan have attracted investors from Australia, Germany, Japan, Denmark, Canada etc. Notably, as many as eight different export credit companies have been involved in financing the upcoming offshore wind capacity of 2,500 MW (under development) in Taiwan.”

On the other hand, in Japan, these projects have been financed largely by local utilities, energy companies, regional companies etc. This is also because Japanese investors (both equity and debt) have developed a body of knowledge in the asset class in other geographies. Another factor contributing to overwhelming local participation is that Japan is equipped with a more established marine services industry and supply chain infrastructure. However, going forward, the industry is expected to open up to external fund providers.

Mathew Taylor, Director, Green Giraffe, highlighted that broadly, there are only two discrete sources of funding. First is by the owners (directly via equity or shareholder loans, or indirectly via guarantees), and the second is by banks without recourse to the equity investors—this is also called ‘project finance’. Mr Taylor also discussed that offshore wind transactions are always heavily contracted. Major contracts include permits, licences, authorisations, etc. Parties with a stake in the financing and a say on the overall project structure may include sponsors/investors, lenders, contractors, insurers etc. Due to the participation and presence of numerous contracts and parties, offshore wind is a quintessential example of a comprehensive contractual structure. The way a project is funded has a material impact on how it deals with contractors.

Figure 2: Debt versus equity source of funding for offshore wind projects
Source: Presentation by Mathew Taylor, Director, Green Giraffe highlighted

Shinichi Yasuda, Senior Vice President & Co-Head of Renewable Finance Team, Development Bank of Japan, explained that in the case of debt funding, the major role of financing is to estimate and ensure the loan amount and interest rate required for the project. This entails increasing the number of lenders (mega banks, regional banks plus banks outside the region, insurance companies, etc.) and improving the interest rate and other terms through a deep understanding of business risk for offshore wind.

From the equity side, the role of financing is about attracting investment with lower cost of equity by financial institutions. This is usually done by ensuring minimum business risk during and after completion of construction of offshore wind power.