Norway’s wealth fund makes first direct investment in renewables with $1.6-billion wind farm deal

Turbines operate at the Walney Extension off-shore wind farm operated by Orsted off the coast of Blackpool, U.K., on Sept. 5, 2018. Norway’s sovereign wealth fund has invested in an Orsted-operated wind farm off the coast of the Netherlands.

Phil Noble/Reuters

Norway’s $1.3 trillion sovereign wealth fund has made its first direct investment in a renewable energy project, a new asset class for the world’s largest state-owned investor, it said on Wednesday.

The fund bought a 50 per cent stake in the Borssele 1 and 2 wind farm off the Netherlands for 1.375 billion euros ($1.63 billion) from Denmark’s Orsted, which will continue to co-own and run the facility.

Such direct investments are new for the fund which, until last year, was only allowed by parliament to invest in stocks, bonds and property.

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The Borssele is the world’s second-largest offshore wind farm in operation, with an installed capacity of 752 megawatts, which can produce the equivalent of a year’s annual electricity consumption for around one million Dutch households.

The agreement was signed on Wednesday, with completion expected in the second or third quarter of 2021.

The transaction will boost Orsted’s 2021 profit before interest, tax, depreciation and amortization (EBITDA) by an estimated 5 billion Danish crowns ($799.5 million), Orsted said.

Danske Bank said in a research note the deal will increase Orsted’s financial resilience. “We also think that the implied valuation on Borssele 1&2 seems attractive compared to market expectations,” it said.

NEW ASSET CLASS

Global competition for offshore wind power is so hot that license auctions now resemble the oil and gas competitions of just a few years ago. Some of the names are familiar too, as global oil majors move aggressively into renewable energy.

Overall the Norwegian wealth fund is looking to invest some 100 billion Norwegian crowns ($12 billion) between 2020 and 2022 in unlisted renewable projects such as wind parks and solar farms, looking at North America and Europe only, as mandated by parliament.

“We want to focus on large transactions so we don’t spend so much time on the smaller ones,” Boerge Sivertsen, the fund’s head of renewable infrastructure, told Reuters. “We don’t want to have too many assets.”

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In October, Chief Executive Nicolai Tangen said the fund was having trouble finding suitable investments because of the paucity of projects and strong competition for stakes in them.

“We are getting approached every day,” Mie Holstad, the fund’s chief real assets officer, told Reuters. Last year, the fund closely examined eight possible transactions, she said.

The fund could partner again with Orsted, or others, on other such projects, she added. Joint ventures with a select few have been a preferred model for the fund its real estate investments.

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