Specialist insurance vital in expanding European wind energy market
28 April 2021
Research from the International Energy Agency suggests that offshore wind energy has the capacity to increase 15-fold by 2040 and become a US$1 trillion business. In Europe, only a fraction of the offshore resource potential has so far been tapped, although around 4,500 turbines have been deployed across the North Sea, the Baltic and the Atlantic in the last decade.
Europe invested €26.3 billion in new offshore wind farms in 2020, financing 7.1 GW of new capacity, despite the COVID pandemic, according to industry association WindEurope
European countries bordering the North Sea have high quality wind resources and relatively shallow water providing exceptionally good conditions in which to develop offshore wind technologies and bring them to market. The EU Strategy on Offshore Renewable Energy proposes to increase Europe's offshore wind capacity to at least 60 GW by 2030 and to 300 GW by 2050.
As a result, there has been an increase in offshore wind Mergers and Acquisitions (M&A) taking place as energy companies look to reposition themselves and prepare for a renewables future.
Europe continues to generate the majority of deal making in the sector, attracting 11 of the 12 deals announced during the first quarter of 2021. According to Inframation, a total of 36 deals worth US$7.7 billion took place in the offshore wind sector in 2020, compared to 25 deals worth US$5.2 billion in 2019.
The relatively low cost of offshore wind is acting as an incentive for investment in the sector, with the cost of electricity from offshore wind falling by more than 66% since 2012—making it a cheaper alternative to fossil-fuel power plants.
This trend, combined with various government incentives to boost investment in the sector, will ensure that offshore wind deal making continues to accelerate over the course of 2021.
How the European offshore sector is shaping up in 2021:
The UK is aiming to increase its offshore wind production to 40 gigawatts (GW) by 2030 and this has been noted by major global energy players.
The UK is currently leading in offshore wind development, with almost 11 GW of installed capacity—more than any other country in the world – which has attracted investors. E.ON sold a 20% stake in UK offshore wind farm Rampion to RWE which gives the German energy group a majority stake (50.1%) in the 400 MW wind farm. The remaining stake is currently owned by a Macquarie-led consortium (25%) and Canadian energy firm Enbridge (24.9%).
Another German renewable energy firm Baywa.re acquired a 50 MW High Constellation wind farm project in Scotland from Blue Energy.
In the Netherlands, Shell announced its intention to acquire the 50% stake it does not own in the 108 MW Egmond aan Zee offshore wind farm - the first offshore facility of its kind in the Netherlands- from Swedish multinational Vattenfall. Following the deal, Shell will become the sole owner of the wind farm with 36 wind turbines in operation.
Norges Bank Investment Management, the arm of Norway's central bank that manages the country's $1.3 trillion oil fund, has agreed to make its first investment in unlisted renewable energy infrastructure, paying 1.375 billion euros ($1.63 billion) for a 50% stake in the Dutch offshore Borssele wind farm.
EWE Erneuerbare Energien GmbH has acquired five German onshore wind farms from InvestInvent Funds SICAV Plc with a capacity of 28 MW. EWE is one of the largest energy suppliers in Germany and currently operates a total wind portfolio on land and at sea of 530 MW.
Italian based Falck Renewables SpA has completed the acquisition of a 59.5-MW wind portfolio in France. Through its subsidiary Falck Energies Renouvelables SAS, the company bought five operational wind farms for EUR 36.9 million (USD 41.9m).
The first Offshore Wind Act in Poland looks set to boost investment in its offshore wind sector. Under its first phase, effective February 2021, the government allocated incentives for 5.9 GW of new offshore wind projects. The Act is expected to play a major role in Poland’s recovery from the COVID-19 crisis, with the potential to generate US$35.2 billion in investment.
Danish multinational Orsted and Polish state-owned public power company PGE Polska Grupa Energetyczna agreed to set up a joint venture overseeing work on two offshore wind projects in the Baltic Sea. The two projects are said to have a combined capacity of 2.5 GW.
Canadian clean energy firm Northland power announced its intention to partner with Polish oil and gas firm PKN Orlen, acquiring a 49% stake in the 1.2 GW Baltic Power Offshore wind project in the Baltic Sea.
With this substantial expansion of the offshore wind energy market, specialist insurance is vital at each stage of the construction, operation and Merger & Acquisition of green energy assets. W Denis Warranty & Indemnity Insurance provides the policyholder with financial protection against a breach of warranty or a claim under a tax indemnity with respect to a transaction.
Up to €1bn of capacity is available from the market, allowing the very largest private deals to secure insurance which typically covers the full suite of warranties and a general tax indemnity, subject to the policy exclusions.
The scope of cover under the policy can often be enhanced and the policy can apply a broader definition of loss or a knowledge scrape and is therefore used as a tool to ease deal negotiations.
W Denis additionally insures the construction and operation of Energy Infrastructure, both on shore and offshore. Our insurance includes physical loss or damage to the assets in transit, in storage, during construction as well as in operation, plus associated Business Interruption and Legal Liabilities.