Renewable Energy, Wind

Northland Power buys majority share in 600 MW offshore wind energy project

Northland Power plans to buy the rights to a majority share in Gemini, a 600 MW offshore wind project currently in advanced development. Gemini is located 53 miles off the coast of the Netherlands in the North Sea.

Northland has entered into agreements with a team of offshore wind developers and contractors. The team includes Typhoon Offshore B.V., a Netherlands-based developer of offshore wind projects in the North Sea; Siemens, a supplier of offshore wind turbines (via Siemens Financial Services); Van Oord Dredging and Marine Contractors B.V. (Van Oord), a Netherlands-based international marine contractor, a joint venture of 48 Dutch municipalities and six water regulatory authorities.

In 2010, Gemini was granted two 15-year agreements with the government of The Netherlands through a competitive tender under the government’s Sustainable Energy Production Incentive (Stimulering Duurzame Energieproductie, “SDE”) program. These agreements provide a premium price for the large majority of the wind farm’s output for 15 years and incorporate mechanisms that reduce revenue exposure to wind power production volatility.

Northland intends to actively participate in Project Gemini by taking a lead role during the remainder of development as well as construction and operations. Northland’s final investment is subject to meeting conditions for closing, formal documentation and the approval of Northland’s board of directors.

Siemens’ final investment is also subject to approval by their board of directors. Northland has appointed a committee of its board to oversee Northland’s involvement in the project consisting of James C. Temerty, Linda L. Bertoldi, Sean Durfy, Pierre R. Gloutney. Upon closing, Northland will acquire a 55 percent interest in Gemini.

Gemini will play an important role in helping the government of Netherlands’ achieve renewable energy targets mandated by the European Union’s Renewable Energy Directive, which calls for all member states to reach a 20 percent share of energy from renewable sources by 2020.

There is currently 5 GW of installed capacity in 58 operating offshore wind farms in European waters with another 5.5 GW in construction or advanced development. According to the European Wind Energy Association (EWEA), it is anticipated that there will be up to 150 GW of installed offshore wind power in the EU by 2030, meeting 14% of the EU’s electricity demand.

As nations around the world increase their use of renewable energy sources, offshore wind has become one of the fastest growing sectors. With offshore wind projects also underway in several other jurisdictions, including the United Kingdom, Japan, and the U.S., it is projected to become a $177 billion global market by 2020.

Once operational, Gemini will be one of the largest wind farms in the world, and will produce about 2.5TWh annually — enough electricity to power more than 785,000 households.

Project Gemini’s total cost is projected to be $3.8 billion, and is expected to be financed with a combination of non-recourse project debt, mezzanine financing and equity from the consortium. Northland’s total net investment will be approximately $400 million, consisting of mezzanine and equity financing, in addition to credit support in the amount of about $32 million to secure the project revenue SDE agreements with the Dutch government.

Construction of Gemini is expected to start in late 2014; it is expected to reach commercial operations in 2017. The project is expected to be accretive on a free cash flow per share basis upon its completion, and provide project returns commensurate with Northland’s investment criteria.