Last month Swire Pacific Offshore announced (here) that its subsidiary, the owner of two jackup windfarm turbine installation vessels (WTIVs), the company formerly known as Swire Blue Ocean, has rebranded itself as Cadeler.
The company said the new name "would reflect the company's Scandinavian maritime heritage and its commitment to excellence in maritime operations." How exactly was not clear, and many computer spell checks try to amend it to the less auspicious "cadaver" or "calendar".
More pertinently, Cadeler is planning a floatation on the Oslo stock exchange to fund its planned newbuilding order of two new WTIVs which will cost around US$280 million each. This spin-off makes more sense than the name change, given that the Swire Group is seriously challenged by the collapse in revenue at its 45 per cent owned affiliate Cathay Pacific Airways in Hong Kong, where the pandemic has led to passenger numbers falling to just two per cent of previous levels in September (here, the most recent month for which figures are available), and where a quarter of the staff have been laid off (here).
The company and its advisers have correctly identified that "the time is right for Cadeler to access the capital markets to support this growth, given the significant interest that exists in offshore wind and renewables in general from the investment community," as the statement puts it.
The investor mania for green energy and renewable projects continues unabated, and has seen Danish windfarm operator Ørsted power ahead to a higher market value than BP, despite the fact that BP has over US$200 billion of revenue, whilst Ørsted has just over US$10 billion.
The recent results announcement from Danish wind turbine manufacturer Vestas showed the strength of investor interest. The company's third quarter results saw orders of 4,232 MW of turbines valued at €3.1 billion (US$3.66 billion), down 11 per cent. Vestas' order backlog was also down more than 10 per cent compared to the same period last year. However, investors have driven up the shares by more than 200 per cent since the start of 2019.
The Financial Times reported that both Vestas and its rival turbine manufacturing competitor Siemens Gamesa trade on an enterprise value 15 times forward cash flows (EBITDA), twice the average over the last ten years. High EBITDA multiples are often associated with frothy markets, and rich investment banking bonuses.
Unfortunately, Cadeler's results in the first half of the year were less than stellar. "Utilisation of [Cadeler]'s wind farm installation vessels increased to 56 per cent in the first half of 2020 from 54.8 per cent in the first half of 2019. Revenue decreased by 70 per cent." Swire Pacific reported here.
So, the only way is up, baby.
Strategically, raising money now is extremely astute, although at the time of writing, the company's "Investor Relations" section of its website remains blank (here). However, Cadeler's latest contract award announcement (here) revealed the bind in which eight years of not investing in new equipment has left it, as Dutch and Belgian rivals power ahead with more complex project management, vertical integration, and additional investment.
Cadeler will be sending its WTIV Pacific Orca to the United Kingdom in early 2021 for performance of a foundation installation campaign for Ørsted's Hornsea 2 offshore windfarm on a subcontract from DEME.
Pacific Orca will support DEME's larger and more modern WTIV Innovation (here) with the installation of 165 monopile foundations. But once the foundations are in the water, the 8.4MW turbines themselves will be installed by DEME's own vessels, not Cadeler's.
The same week, Van Oord announced that it was taking a strategic shareholding in Saare Wind Energy, a company developing the Saaremaa offshore wind farm in Estonia.
"The collaboration with Van Oord allows Saare Wind Energy to intensify the development process for this offshore wind farm, as financial support and knowledge are combined. Saare Wind Energy has extensive knowledge of local conditions and the environmental impact assessment. Van Oord, being an experienced offshore wind contractor, has been involved in several early developments of offshore wind farms," the company said in a press release.
This investment in the fields it is building locks in revenue and contracts for Van Oord itself, just as Saipem has done off Italy.
In an announcement here, Saipem declared in August that it will co-develop a wind farm in the Adriatic Sea, off the coast of Ravenna. This project will involve the installation of approximately 56 turbines on fixed foundations on the seabed at two different sites: one located more than eight nautical miles from the shore, and the other more than 12 nautical miles from the shore.
The overall installed power will be approximately 450 MW. This means Saipem is effectively becoming a supplier to itself, building a track record in wind on its home turf.
As the big integrators move ahead as shareholders in their own projects, there is a risk that the smaller WTIV owners are marginalised as subcontractors only. This message has yet to reach Monaco and the Lauro family, however.
Whilst Cadeler frets over its letterhead and faux Nordic name, Scorpio Bulkers has been pushing ahead with its plan to build two new WTIVs at Daewoo in Korea, and in October it made further moves to exit its legacy bulk carrier business.
Emanuele Lauro's company sold eight bulkers in October and Mr Lauro has made it clear that he intends to completely exit the dry bulk sector and become a pure play WTIV owner, which will presumably also entail a change of name, preferably one which isn't a nonsense neologism.
Scorpio has disclosed that each WTIV will cost around US$265 million to US$290 million and that delivery is scheduled for 2023. Scorpio also has options for an additional three vessels.
Again, investor sentiment has been driving the transformation. Mr Lauro has spoken in the industry press that the change of strategy was sparked by "the lack of interest from investors in dry bulk in general and the lack of volume in the stocks" and a concern that dry bulk was a sector where Scorpio "could not dominate".
Based on the massive investments made by the big Dutch and Belgian contractors like DEME and Boskalis, Mr Lauro may face disappointment, as it seems likely that a two- or even four-WTIV vessel player in wind installation is not going to command much pricing power – especially when compared to the product tanker segment, where Scorpio Tankers has built up a degree of market dominance in recent years with a fleet of 137 vessels (here).
Like Cadeler, Scorpio Bulkers will need to raise extra finance to fund Mr Lauro's renewable vision of newbuild WTIVs. The company's stock is currently trading at a five-year low after years of poor returns from the legacy bulk carrier fleet. Its balance sheet is burdened with high debt levels – US$661 million as of June 30, 2020, before the sales proceeds from its ships last month – and low cash reserves of just US$41.6 million on June 30.
The acquisition of the WTIVs will require further debt and equity to be raised, an investment banking dream come true. Expect the pitch to focus on the huge growth in offshore wind turbine installation, rather than the rise of integrated, well capitalised competitors with a proven track record.
Indeed, offshore wind financings in the first half of 2020 totalled US$35 billion, a rise of 319 per cent year-on-year. Indeed, the first six months of this year saw more investment in offshore wind farms than the whole of 2019, which was itself a record year.
Between January and June 2020 investment decisions were confirmed on 28 offshore wind farms, including the largest ever, the 1.5GW Vattenfall Hollandse Zuid array off the coast of the Netherlands, which will cost an estimated US$3.9 billion. This huge investment is the prize Cadeler and Scorpio, DEME and Van Oord are chasing.
Other major offshore deals approved earlier this year include the 1.1GW SSE Seagreen project off the UK, at an estimated cost of US$3.8 billion; the 600MW CIP Changfang Xidao array off Taiwan, with a budget of US$3.6 billion; and the Fecamp and Saint-Brieuc projects in French waters, together totalling 993 MW of power and costing US$5.4 billion.
Evwind reported that there were no fewer than seventeen Chinese offshore wind farms financed in those six months, led by the Guangdong Yudean Yangjiang Yangxi Shapaat facility, which has 600 MW of generation capacity and a construction budget of US$1.8 billion.
Everyone is now wise to the massive investment and the new marine vessel requirements offshore wind is going to generate. Subsea 7's renewables and heavy lifting business Seaway 7 announced that it would be strengthening its fleet through the addition of a second cable lay vessel.
Seaway 7 will take a laid-up 130-metre-long construction/flex-lay vessel, Seven Phoenix (built in 2003) and upgrade it as a dedicated inner-array grid and export cable installation and trenching support vessel. Seven Phoenix has been stacked following the end of its last charter contract in 2018.
Seaway 7 has stated that after the conversion, Seven Phoenix should be ready for operation around May 2021 and will be renamed Seaway Phoenix.
This will boost Seaway 7's cable and inner array fleet from its current two vessels, the installation support ship Seaway Moxie and the cable lay vessel Seaway Aimery. The company also operates two heavy lift vessels across oil and gas and windfarm installation, Stanislav Yudin and Oleg Strashnov.
The same pattern of offshore units being converted to wind farm work is seen in China. This week, Cosco Nantong Shipyard announced it had won a contract from CRCC Harbour Engineering to convert the semi-submersible diving vessel Tie Jian Qian 01 into a windfarm installation vessel.
The details of what will be done are sketchy, and no contract value was released. Indeed, few pictures of the ship are available at all. However, Cosco has said that the vessel will be used for domestic wind farm engineering works after the conversion.
The two state-owned companies have close ties. CRCC Harbour Engineering first entered into the offshore wind farm installation business when it took delivery of its first WTIV Tie Jian Feng Dian 01 from Cosco last year.
Other countries are now wise to the benefits of offshore wind farms as well as the world tries to move away from carbon emissions (see here). This week Romania's senate passed a draft law to lay the groundwork for the sector in the Black Sea, by agreeing to provide subsidies to offshore wind farms, Economica.net reported here. The bill now needs to be approved by the Chamber of Deputies in Bucharest.
The law confirms that the right to initiate and build offshore wind farms will be obtained from the Romanian government, either following a competitive tender procedure or through direct licencing. In the case of a tender, the windfarm concession will be granted on the basis of the "lowest price" but "offshore wind farms established in accordance with the competitive tender procedure are entitled to subsidies, in accordance with the mechanism of contracts for difference" the law states.
Economica.net noted that, unfortunately, at present, Romania does not yet have a subsidy mechanism for contracts for difference, but a feasibility study is being developed in this regard.
Wind farms set up through direct licencing will receive subsidies based on a much clearer formula. When they produce power, they will receive a maximum bonus of €25 (US$29.54) per MWh, only if the sum of this bonus with the market price of electricity does not exceed a price cap of €60 (US$70.88) MWh – otherwise, the premium is reduced accordingly.
"The premium is granted for a total amount of production, determined for each project, based on a combination of the installed effect of the wind farm, which represents 30 per cent, and its area, which represents 70 per cent," the law reads.
Moreover, in addition to the premium, an additional fixed compensation of €20 (US$23.63) per MWh is granted, "for balancing costs", which the park operator receives for 20 years from the connection to the national electricity grid. This means that "the investor is practically guaranteed a subsidy of up to €45 (US$53.16) per MWh sold (which decreases if the energy in the market is more expensive) after the offshore wind farm starts production."
Anyone familiar with the offshore sector in Romania will know that one company, Grup Servicii Petroliere (GSP), has built an enviably dominant market share in all offshore activities in Romania, including offshore construction, shallow water drilling, and the chartering of OSVs.
Some might call GSP a monopoly, but we are more charitable; an enviably dominant market share would be correct. So, it comes as no surprise to learn that GSP has now set up a new division called GSP Power to benefit quite legally from all these new Romanian government subsidies.
No sooner was the new law announced that GSP declared it intended to participate in new offshore wind projects in the Black Sea:
"Our interest for making investments follows exactly current global trends, and consists of renewable solutions, photovoltaic and wind farms. The Black Sea has development potential in addition to offshore gas, it has the potential for wind turbines offshore, especially in the north-western part of the Black Sea, which is also extremely suitable as a location for such turbines, given the characteristics of the soil on the seabed, and in terms of the available wind strength" said the director general of the company, Carmen Neagu, in the Romanian press coverage.
So, another chance for GSP to grow its offshore interests in Romania, and another country seeking to spend billions on offshore wind. As Citigroup's doomed CEO Chuck Prince commented of his bank's imprudent lending policies a year before the global financial crisis struck in 2008, "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance."
Which is exactly what we see in offshore wind now. Keep dancing, everyone.
The full list of 2020 offshore wind farm investments is covered here.
