In December we ended an extraordinary year for the Dogger Bank Wind Farm with a prestigious award from Project Finance International, as their Global Green Deal of the Year. Since then we’ve gone on to scoop Global Trade Review’s Best Deal of the Year, and TXF named us ECA-Backed Deal of the Year.
From historically low strike prices to unprecedented global economic uncertainty, Project Finance Director Oliver Cass (picture below) updates us on what made the financial close on the first two phases of the project a global phenomenon.
World’s biggest offshore wind farm
“The first thing that makes this milestone standout from any other offshore wind financing deal is the sheer scale of the project. Together, the three phases of Dogger Bank Wind Farm make it the world’s largest development of its kind, with a capacity to provide renewable energy for 6 million UK households.
“A large development needs a large financial package, and they don’t come bigger or much more complex than the financial close of Dogger Bank A and Dogger Bank B.”
29 lenders, 3 export credit agencies and 10 contracting parties
“To close these deals we had to manage the expectations of 29 lenders and 3 export credit agencies for each phase, as well as 10 diverse contracting parties.
“The need for structure from the very outset of the project has never been more important. We couldn’t afford for any part of the process to be derailed, so we had to make certain our business case was watertight at a very early stage.
“We carried out comprehensive market sounding in Q1 to test the structural features of the project, engaging early on with export credit agencies to make sure they were on board. We issued the banks with very detailed due diligence and a full set of financing documentation.
“Getting the conditions right and maximizing competitiveness, while aligning the banks and ECAs was critical.”
“Of course, the question most analysts have been itching to ask us is why we did two separate deals. The truth is whatever we did, we knew it was going to be a complex process with very bespoke arrangements.
“We knew we needed 5 to 6 billion pounds of debt and we were launching the project at the start of COVID, when there were concerns about the appetite in the debt market for a single project of that size.
“And while the two phases are very closely interlinked with the same tier one suppliers and a shared onshore cable route, we felt we would have greater success by offering two separate financings, ensuring maximum liquidity and competition, and optimising value for our shareholders.
“Reflecting on the situation now, I wouldn’t change how we structured the two deals.”
“Looking back to the early COVID world, there was a lot of concern in Spring that the global markets would be paralysed by the growing threat the pandemic posed.
“In the pre-COVID world we all thought 2020 was going to be an extraordinary market, and we were unexpectedly faced with the task of ensuring our lenders were happy with these new and emerging risks.
“To achieve financial close on time on two phases with the high volume of lenders and contracting parties was a huge success in its own right. To do this against the backdrop of a global pandemic was both unexpected and an extraordinary achievement for every person involved.”
Innovation and expertise
“And then there is the project itself. A brand-new turbine and HVDC technology not used in the UK for offshore wind before. Pioneering new technology is both exciting and challenging, but in the financial world you need to prove it’s a beneficial differentiator.
“If I had to single out one part of the process that really stood out from anything else, it’s the team. With a Herculean effort to negotiate and sign contracts with 10 major contracting parties for each phase, not to mention the unrivalled commitment from many people from multiple other organisations.
“This, together with the engineering excellence and sheer scale of the project, meant we were able to deliver a business case that works for lenders and shareholders at historic low strike prices.”
Historic low strike prices
“A couple of years ago it would not have been believed that a business case would stand up at such low strike prices, and that’s probably one of the stand-out characteristics of this eye-opening deal.
“It was always going to be a fine balancing act between cost and certainty, and the project proved to be sufficiently well-developed to get through financial close without a huge amount of contingency funding.
“Looking forward to financial close on Dogger Bank C later this year, we already anticipate interest being extremely high. We’ve had lots of lenders keen to get started on this third phase and we’re hugely excited about what can be achieved.
“To close the year with an award from Project Financing International and then go on to secure further recognition in 2021 is very rewarding for those who worked incredibly hard to achieve this gargantuan and complex financing against a backdrop of the biggest health and social challenge for generations.”