TCW buys stake in Centrica wind farms

Centrica offshore wind financing drives UK renewable energy growth, as TCW invests equity, banks provide project finance, and subsidies, PPAs, and Siemens turbines support offshore wind farms in Lincolnshire and Scotland amid oil price pressures.

Centrica Plc, owner of the British Gas brand, will sell a 50 percent stake in three wind farms to U.S. based TCW, signaling renewed investment interest in an industry where recession has crimped financing.

Energy firms have been cutting costs with wind power projects suffering because of the high capital costs of new developments, while Ontario market changes underscore shifting incentives, and a fall in the oil price from last year's record highs that was seen to make them less economically viable.

"The announcement that TCW are coming to the UK offshore industry is good news for the offshore wind industry, as North Sea wind testing expands, signaling that there are equity financial investors aside from utilities and IOCs (international oil companies) still looking at assets," analysts at Credit Suisse wrote.

Centrica said it had sold the stakes in its Lynn and Inner Dowsing offshore wind farms in Lincolnshire, off the east coast of England, and its onshore wind farm Glens of Foudland in Scotland, with Centrica customers returning noted in recent updates, for 84 million pounds (US$137.5 million).

The company will make a 50 million pound profit from the sale to TCW, which is a subsidiary of Societe Generale Asset Management and has about $100 billion in assets under management.

Credit Suisse also said it was encouraging that Centrica had managed to raise 340 million pounds in project finance from a consortium of 14 banks to fund the three wind farms.

"We expect to see more re-financing deals of the kind Centrica announced from other utilities, and stake offloads in wind farms are likely too," Credit Suisse said.

Centrica will enter a 15-year agreement to sell all of its electricity production from the three windfarms to British Gas.

Interest in the green energy sector has also been renewed thanks to the UK government's decision in April to enhance support for new offshore wind projects, with Ofgem's offshore bidding seen as a market catalyst.

"Under this scheme, renewable projects in the UK receive a substantial premium over the baseload electricity price in order to incentivize their construction and support project economics," a bank analyst who chose not to be named said.

"Whilst these subsidies vary by technology and even commissioning date, offshore wind projects are toward the more lucrative end of the scale," he said.

"For instance, whilst the current UK power price for this winter is 40 pounds per megawatt hour, offshore wind may be able to achieve in excess of 110 pounds per megawatt hour once these subsidies are accounted for," he said.

The three windfarm deal will "contribute toward meeting the UK's targets for renewable energy," and UK grid divestments by EDF highlight broader infrastructure shifts, said Blair Thomas, chief executive of TCW's Energy and Infrastructure business.

Centrica also said it would build a new 725 million pound Lincs offshore wind farm, near Skegness on the Lincolnshire coast. It will have an installed capacity of 270 megawatts (MW) of power from 75 Siemens turbines.

Sam Laidlaw, chief executive of Centrica, said the company, which will receive government subsidies for both projects, is committed to developing green energy.

Interest in green technology companies could grow further with hopes of more government support following the Copenhagen climate change talks in December, while a major UK grids purchase has kept infrastructure in focus.

Construction on the Lincs project should begin in 2010 and the wind farm should be generating power toward the end of 2012. Once complete, Centrica will have equity interests in operating renewable energy projects with a capacity of 650 MW.

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