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E.ON to flog stake in wind farms to private firms

EU energy behemoth will finance new plant every 18 months

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Energy giant E.ON is to seek private investment for three large offshore wind farms, it has announced. The investment would be in addition to the €2 billion it said it will invest itself in the projects.

The company said that it was looking at ways of creating "more value with less capital" as it announced the €2bn in three major offshore wind farms over the next five years.

"This means, for example, that we'll no longer be both operator and sole owner of wind farms. Instead, we'll create value through wind-farm design, planning, construction and operation," it said in its annual report (208-page / 1.5MB PDF).

The company said that it had plans to commission a new offshore wind farm "every 18 months" in the UK, Germany and Sweden, while at the same time reducing the costs of building and operating these assets "significantly".

Its new business model will see E.ON selling minority equity stakes in operational wind farms to private investors while retaining responsibility for operation and maintenance, according to industry publication Environmental Finance. This will allow the company to invest more than the €7bn package it has laid out for renewable investment over the next five years, while still maintaining overall ownership of its assets.

Renewable energy expert Nick Shenken of Pinsent Masons, the law firm behind Out-Law.com, said that the company's strategy was unsurprising. "I expect this model to be one that others will seek to utilise," he said.

"The capital intensity of the renewables investment programmes of many key players necessitates a search for alternative funding models, and equity sales in existing projects to fund a future pipeline are a good example. We have seen it before with DONG Energy's equity sales at Gunfleet Sands in the UK and more recently at Borkum Riffgrund 1 in Germany," he said.

Danish operator DONG Energy sold a 49.9% stake in its Gunfleet Sands wind farm, off the cost of Essex, to Japanese investment company Marubeni in 2011. It has since arranged the sale of a 50% stake in a German offshore wind project to two different investors.

The company said that its UK retail arm invested £61 million in 2011 on projects including its commitment to installing over one million smart meters by 2014. Smart metering technology, providing real-time information about energy consumption and demand to suppliers and network operators, is expected to be installed in every UK home by 2019.

Last month the heads of some of the world's biggest wind companies told a UK newspaper that they were reviewing investments or seeking clarification from the Department of Energy and Climate Change (DECC) due to uncertainty over the Government's current energy policy. The DECC has proposed cutting the financial support available to offshore wind generation projects from 2015 as development and operational costs fall. The change is part of its review of renewables obligation certificates (ROCs), the main financial support mechanism used to encourage the development of large-scale renewable electricity generation projects.

Copyright © 2012, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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