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Catching the Global Jetstream in Offshore Wind

04/06/2018

The global offshore wind market continues to grow and the US market is beginning to open up with the help of Societe Generale's Natural Resources and Project Finance group.

The Bank, in conjunction with the Business Network for Offshore Wind, hosted an event, "Advancing Investment In US Offshore Wind" in New York  to discuss recent advances and approaches.

While the European market has expanded offshore wind farms rapidly, the US is still in its infancy. However, both Societe Generale's experts and industry professionals noted that several US states along the Northeast coast are ready to make wind a major source of energy.

SG financed the first US offshore wind farm, the $298 million Deepwater Wind's Block Island Wind Farm off the Rhode Island coast. Launched in December 2016, the historic 30 MW project partnered DE Shaw's affiliate Deepwater with Societe Generale and now produces power for 17,000 homes.

But that is just the beginning.

The renewable energy sector is expected to blossom in the coming years as more Northeast states turn to offshore wind to power their cities. One major driver is that many older power plants, running on decades old diesel fuel systems, need to be replaced. A switch to natural gas powered plants is not practical, leaving many state governments looking to offshore wind.

Maryland has paved the way for its first project from Deepwater, a 120 MW project named Skipjack Wind Farm, that is projected to produce enough power for 35,000 homes starting in 2021 and another slated to produce more than 250 MW. A project in New York, the South Fork Wind Farm, will power 50,000 homes when completed. New Jersey is planning a larger project that would generate 1 GW of power. These are just a few examples of projects that are expected to kickstart the offshore wind power market from Massachusetts to Maryland.

Chris Moscardelli of Societe Generale's Project Finance Group said the hope is there will be one to three deals financed in the next 18- to-24 months. "We're bullish on offshore wind," he said at the forum, held at Societe Generale's New York office. "We're providing solutions to clients who have challenges, whether it's raising financing or structuring deals in ways that can be bankable. We work closely with our clients to solve those problems and look for ways to assess issues so they can get their projects financed and ultimately built." 

 

Q&A with Roberto Simon, Managing Director and Head of Project and Energy Finance, Americas at Societe Generale on the US Offshore Wind Power Sector


What are the dynamics of the US offshore wind market?


When you look at the load centers, it's the Northeast states in the US with large metro areas and the US West coast, once again with large metropolitan areas. Those happen to be places where there are great offshore wind characteristics. They have relatively shallow water offshore which is good for building the foundations.

However, in the Northeast US states, it is difficult to build because of governmental and public opinion concerns. The state of Vermont is a great example. It doesn't want gas powered plants. But it doesn't want wind power on land because the turbines take up a lot of space. And depending on your view of wind farms, they may not be very attractive from a physical perspective.

So how do you get electricity to states like Vermont, Massachusetts, New York, where it is tough to find a lot of land to build these projects - wind or solar? Offshore wind is a great solution because there is ample room. The wind conditions are excellent in that area. And now they're building a transmission line onshore to connect to the grid.

How is the US market evolving? What is the demand?


It's going to be state-by-state and every state is going to be slightly different, with a different type of support mechanism and process. This makes it more difficult for the larger European offshore wind developers. They need to understand that the US federal government is not going to dictate how the process works, which is how it is in Europe. For example, the developers will have to understand how the State of New York works, and what New York Governor Cuomo wants, and also understand how utilities respond to the governor. And that dynamic is going to be different for Maryland and Rhode Island and so forth.

Societe Generale was the first to get into US offshore wind farm space with the Block Island Wind Farm. You raised $298 million for Deepwater Wind, an affiliate of DE Shaw, to finance it. Why did you decide to get involved with that project?


DE Shaw was the money behind Deepwater. We've known them a very long time, and we have a high level of respect for their expertise and ability to execute. The fundamentals of the transaction were also very attractive to us. And since it was the first one, it was nice that it wasn't large and seemed manageable.

It made a lot of economic sense. By building offshore of Rhode Island, we were replacing diesel fired generation on Block Island itself. So the people of Block Island were supportive. The state of Rhode Island was also very supportive and we had a very good offtaker in National Grid for buying the electricity that Block Island wasn't going to use and bringing it onshore.

So political support both on Rhode Island and Block Island, the size of the transaction, overall structure – those factors all made sense for us for our foray into offshore wind.

It's still unclear how offshore wind will develop here in the United States. Will it be smaller transactions like Block Island of 200 MW or less, or will it be like a model in Europe where there are very large 1,000 to 1,500 MW transactions? That's still open for debate. For us, we have the expertise for large scale transactions. And we wanted to gain the expertise on the small-scale transactions.

Any lessons you learned from a project like Block Island?


The key lesson learned was that it takes education, so that all parties understand the value drivers, risks and mitigants of offshore wind. It was a little more difficult in dealing with the banks because even though many have offshore wind teams in Europe, the teams here in the US do not have that same expertise. They were a little more siloed that we are at Societe Generale. We talk frequently to our colleagues in Europe.  

So what is the potential for the US offshore wind market? And how is Societe Generale positioned?


In five years, we'll have several gigawatts, from Massachusetts down to Maryland, once it takes off. We're extremely well positioned. We have a leadership position, expertise and knowledge in how to get these things done. We have capital. We have appetite. And we have many relationships with the people looking to develop these projects, particularly with the European companies looking to be involved in the US market.

We will see some US independent power developers as well, and we are seeing them become very nimble. Firms that were developing gas-fired power plants moved to onshore wind and are now moving to offshore wind and solar. DE Shaw is a great example. Their first project was First Wind, which was onshore wind. They sold it and were looking for the next opportunity and looked offshore. And then from Europe, you see all the established large-scale developers- from Statoil, Total, EDF and so on.

When you look at the European and Asian markets, how are those markets developing for offshore wind?


Offshore wind in Europe has gone from a relatively new industry to a mature industry in a very short period of time. European governments have gone from subsidies to no subsidies for offshore wind. We've seen power prices come down, returns come down as well, and costs are coming down very quickly for larger turbines. We've seen it become very competitive, very quickly and the returns have come down quickly over the past five years.  

In Asia, the issue is the physical characteristics. In Japan, for example, they have a lot of coastline of course, but the challenge is their offshore conditions. The water offshore there goes very deep, very quickly. So it is more difficult to build offshore wind. Taiwan and some other Asian countries, however, I'm sure will be candidates for offshore wind. That's going to be a function of wind and physical characteristics.

When you look at what Societe Generale is doing in trying to bring such clean energy projects forward, what are your thoughts about how you're helping change the world?


When I look at where we operate - in everything from upstream oil and gas to renewables and getting more active in battery technology – I really think the world is a spectrum.

Things change, and I think what we don't really appreciate in the United States or in Europe, is that when we flip the light switch, we don't wonder where the power comes from. But when you go to parts of China, Latin America or Africa, a lot of those people don't have electricity.

Right now, most of the electricity generated in developing countries is from diesel-fired generators, which are super dirty. As we help develop these new technologies and help the world transition away from dirtier fuels, we are bringing electricity to these places in better way. And electricity also means clean water, hospitals and health care and so forth for these areas.

So I see us helping the world and improving it, not just in our country, but globally. By helping bring electricity to these areas, we're also elevating the living standard for people who don't have the good fortune of living in the developed world.

 

 

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