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It is also well known that the scale of the opportunity is growing as wind farms are being built further out to sea (potentially up to 30 km) and are using larger and more numerous turbines.
Many support services players offer services in this market including Robert McAlpine, Amec and AWG.
But the wind power market has been slow to get going.
Investment should be stimulated by Government targets to increase power generation from renewables to c.10% by 2010 (up from c.3% today). However, investor confidence in wind power has been weakened by Government’s slowness to commit to its long-term future (i.e. post 2010). The result has been to dampen market growth, and resultant construction opportunities. Amec has responded by becoming involved in wind farm project finance. Following profitable self-completion of the (externally risky) construction phase, AMEC sells the licence rights to utility companies, often retaining provision of the O&M services.
The returns can be significant – AMEC is seeking 20% annual returns from potential future long-term investments in larger wind energy projects. It has developed or is developing 17 onshore and offshore projects.
Is there a lesson in this? As construction and support services companies seek better quality returns, we would expect to see more specialisation in niches. Project finance will become a natural extension of this.
PFI has shown that the indsutry can develop finance skills; we are now seeing that these can be leveraged in new sectors.
Chris Molloy is a Partner at Credo.
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