Orsted, the largest developer of the offshore wind technology, has been selling down stakes in its wind assets as part of a major review launched earlier this year.Phil Noble/Reuters
Brookfield Asset Management Ltd. BAM-T is wading into the offshore wind sector with a US$2.3-billion investment to buy minority stakes in four wind farms off the coast of England from beleaguered energy company Orsted A/S DOGEF.
Toronto-based Brookfield is acquiring 12.45-per-cent stakes in the wind farms, which are already operating and have a combined capacity to generate about 3.5 gigawatts of electricity. The investment is being made through Brookfield’s fifth flagship infrastructure fund, with participation from its renewable energy arm and its institutional partners.
Until recently, Brookfield had mostly steered clear of investments in offshore wind, even as it emerged as a renewable energy powerhouse. The long development timelines for new projects and uncertainty about costs, especially with bottlenecked supply chains and high interest rates, were calculated to be too risky for some of Brookfield’s funds, which gravitate toward assets with stable cash flows from predictable contracts. But as more projects have come online and turbines in the ocean have started turning, some developers and owners of wind farms have come under pressure, making opportunities to invest in projects start to look more attractive.
“This is Brookfield’s first investment in U.K. offshore wind, which will continue to be a critical part of the energy mix and to support the growing demand we see for clean energy,” Connor Teskey, chief executive officer of Brookfield Renewable and president of Brookfield Asset Management, said in a statement.
Brookfield Renewable’s exposure to the transaction, which has an enterprise value of US$2.3-billion, is about US$570-million through its investment in the company’s infrastructure fund. It is the renewable energy division’s first investment in an offshore wind farm that is already producing power, after it took a stake in a development in Poland that is under construction.
“We expect the company will continue to grow its offshore wind footprint,” RBC Dominion Securities Inc. analysts Nelson Ng and Shelby Tucker said in a note to clients.
Offshore wind farms are attractive because of the steady winds at sea that can help power turbines and because their distance from shore helps avoid some of the resistance from local communities which worry they are an eyesore or could have health impacts when built near homes on land. But it is also a complex feat of engineering to fix turbines that can be as tall as 120 metres to floating platforms anchored by cables to the sea bed, sometimes hundreds of metres below.
The offshore industry’s challenges have been evident at Danish-based Orsted, which has been the largest developer of the technology but has been selling down stakes in its wind assets as part of a major review launched earlier this year. The company shook up its management team, wrote down the value of its portfolio and paused dividend payments.
Orsted will still own nearly 38 per cent of the four wind farms Brookfield is buying into, and the agreement gives Orsted an option to buy the assets back from Brookfield at a set price between two and seven years from the closing of the deal.
Brookfield Renewable has pushed rapidly into renewable energy investments. It raised and invested its first, US$15-billion fund focused on the global energy transition in two years, starting in 2021. By early this year, it had raised the first US$10-billion of a second global transition fund that is expected to be meaningfully larger than the first. And it has kicked off fundraising for a Catalytic Transition Fund that aims to invest US$5-billion in clean energy in emerging economies, anchored by a US$1-billion commitment from Altérra, a climate fund controlled by the United Arab Emirates.
On Wednesday, Brookfield signed a non-binding memorandum that would make Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), an anchor investor for a new, US$2-billion private-equity fund Brookfield is launching to invest in the Middle East. The new fund aims to make at least half its investments in Saudi Arabia and the rest in nearby Persian Gulf economies. As Brookfield looks to more than double the size of its private-equity business over five years, the company has turned increasingly to the Middle East as a source of investment capital.