•  OFTO Market - Releasing investment through pioneering funding structures 

     

    Whilst offshore wind remains a core strand of carbon reduction policies, generating the capital required to develop the appropriate infrastructure remains a challenge in uncertain economic conditions.

     

    As a leading funder of complex and ground-breaking energy projects, in 2011 Lloyds Bank played a central role in enabling the Offshore Transmission Owners (OFTO) regime to establish itself as an effective model to stimulate investment in this growing sector. 

     

    A model for the future 

    The OFTO regime, which provides licences to operate the high-voltage link between offshore wind farms and the onshore transmission network, was designed by the regulator OFGEM to provide a model capable of generating between £10-15bn of new investment in this infrastructure and driving its timely and efficient installation.

     

    Alan White, Head of Conventional Energy, Project Finance, Lloyds Bank, said: “As the first regime of its type in the world, it is a bold move and one which needs to balance the cost and deliverability aspects of independent ownership with the obligation to generate value for a broad range of stakeholder groups, including the end energy customer.

     

    “Whilst the low-risk OFTO model centres on stable revenue streams, the model’s funding structure needed to be bankable from the start to guarantee certainty of finance and ensure these regulated assets would be able to access capital markets to meet long-term requirements.

     

    “To achieve this we needed to overlay Lloyds Bank’s wider infrastructure and energy skills with an innovative long-term and sustainable project finance deal structure.”

     

    Round 1: Robin Rigg 

    The inaugural project in the first round of OFTO licences to complete was Transmission Capital Partners’ acquisition of the existing assets which link the Robin Rigg wind farm in the Solway Firth to the mainland.

     

    By combining our experience of funding electricity generation and distribution projects with a deep understanding of concession, licensed-based regimes such as PFI, we were able to work closely with our client to structure an appropriate debt package which helped it win the highly competitive bid process.

     

    In addition to structuring an acquisition facility with an overall debt term of 19 years, we worked alongside our Risk Management, Loan Syndication and Financial Institutions teams to develop tailored Retail Price Index and Interest Rate Hedging facilities.

     

    This cross-discipline approach was instrumental in creating a competitive financing package and laying strong foundations for the debt to be refinanced in the capital markets over the coming months and years.

     

    Amanda Woods, Amber Infrastructure Management, said: “From the outset Lloyds Bank grasped the opportunity to lead from the front and, by taking a highly considered but flexible approach, they have structured competitive finance packages which have enhanced our bids and in turn helped make the OFTO concept a highly appealing prospect to the wider bank market.”

     

    Powering up 

    The success of this inaugural transaction demonstrated a strategic and coordinated approach to funding OFTOs which inspired confidence in the market and paved the way for a further eight OFTO transactions to complete in 2011.

     

    Lloyds Bank has established itself as the leading debt funder in this new market, using tailored versions of the model developed to execute Robin Rigg to finance three other deals in 2011 and support the preferred bidders on a further four.

     

    These included:

     

    • Funding Transmission Capital Partners’ acquisition of the link from the 172MW Gunfleet Sands offshore wind farm near Clacton, Essex to the onshore grid. The OFTO licence is for a 20 year term and ownership was transferred from the wind farm owner Dong Energy. 
    • Supporting the acquisition of assets at the offshore wind farm Walney 1, located approximately 15 km off Walney Island, Cumbria in the Irish Sea. The 20 year licence was acquired by Blue Transmission, a licensee consortium which includes Macquarie Capital Group.  As the project involved an element of construction, half the required funding was provided by the European Investment Bank (EIB).
    • In the third deal completed with Transmission Capital Partners in 2011, we supported the company's acquisition of the high voltage link to the 90MW Barrow offshore wind farm in the Irish Sea from its owners Dong Energy and Centrica.
    • The success of the Walney 1 deal is seeing us support Blue Transmission’s preferred bid for the acquisition of the Walney 2 and Sheringham Shoal licences and we are also working closely with Balfour Beatty on its bid for the Greater Gabbard OFTO.

    Stephanie McGregor, Director, Offshore Transmission, OFGEM, said: “Lloyds Bank has played a key facilitating role establishing the success of the OFTO regime and has provided valuable insights for our ongoing development of subsequent tender rounds. We greatly appreciate the support they have provided in the early development of the OFTO regime.”

     


     

     

    [1]  Amber Infrastructure Limited is part of the Transmission Capital Partners consortium, together with International Public Partnerships and Transmission Capital Limited.

     

7/29/2014 9:49:31 AM